From 6 July 2022, the National Insurance Contribution (NIC) threshold will be increased to the same level as the current income tax threshold which is £12,570. During the 2021-22 tax year the NIC threshold was £9,568, so this will be a significant change. The change was announced in the Chancellor's Spring Statement in March and means that from 6 July:

  • if you earn less than £12,570 a year you won't have to pay any NICs or income tax;
  • if you earn more than £12,570 a year and less than approximately £35,000 a year you should be better off;
  • If you earn more than approximately £35,000 a year, you will be paying more NI than in the 2021-22 tax year.

Who benefits from the increase in National Insurance threshold?

The NIC threshold has been increased from £9,880 as part of Rishi Sunak's attempts to help individuals through the current cost of living crisis. HM Treasury have said the increased NIC threshold will see a 'typical employee' being £330 better off. They also estimate the increase will see 2.2 million people not having to pay any NICs, and 70% who do, will be paying less from July if they earn less than approximately £35,000 per year.

Additional changes to NICs

The increase of the NIC threshold follows on from the increase in NICs which came into force from April 2022. Since then both employers and employees have seen their NIC payments increase by 1.25 percentage points. A further 1.25% increase has been levied on dividends drawn down by shareholders within limited companies. Further details about this NIC increases can be found in our blog, 'How to reduce the tax burden of rising NIC and dividend tax rates'.

What does the increase in NIC threshold mean for directors?

These changes in NIC and the increase in the NIC threshold also apply to directors in limited companies, whose NICs are calculated on an annual basis. The potential benefit arising from the increase in the NIC threshold is the same for company directors as it is for employees. In the 2022-23 tax year, directors in limited companies can earn up to £11,908 before paying any NIC. This is calculated on the basis of them earning £9,880 for 13 weeks up to 30th June, and then increasing to the new NIC threshold of £12,570 for 39 weeks from 1 July.

A full breakdown of HMRC's list of tax rates and thresholds for employers during the 2022-23 tax year can be found here.

Not sure how to calculate yours or your employees NICs?

Calculating NICs and making sure the correct amount of tax is being paid by the employer and the employee can be confusing and very time consuming to undertake. At DWilkinson&Company we can handle all your NIC and broader payroll matters. Further details can be found on our Essential Business Services web page or drop us an email at office@dwco.co.uk or call 0113 320 0001.