How much extra is National Insurance going up?

The amount you pay depends on how you work and how much you earn. National Insurance rates are split between different classes and bands. Employees pay “class 1” contributions. At the moment, the tax kicks in on earnings in excess of £190 a week at a rate of 13.25pc and then at 3.25pc on all other earnings above £967 a week. Employers pay 13.8pc but this will also rise to 15.05pc.

The self-employed pay slightly lower rates of either “class 2” or “class 4” contributions, depending on how much they make. Class 2 contributions are set at a flat-rate of £3.15 a week in 2022-23.

Class 4 contributions are due if you are self-employed and make profits of £9,880 or more in 2022-23. If you’re over this threshold, you’ll pay 9pc on profits between £9,800 and £50,270 in 2022-23.

What does the raised threshold mean for my tax bill?

The threshold at which workers start paying National Insurance contributions will increase to £12,570 in July, bringing it in line with when people start to pay income tax. 

The limit was already expected to rise to £9,880 from £9,568 this month, but will now go even higher in the summer. This means that from July, the tax will kick in on earnings in excess of £242 per week.

Someone earning £25,000 will pay £1,656 in National Insurance contributions from July, down from £1,852 they pay at the moment. However, someone on £50,000 will pay £4,968, up from £4,852.

Had the Chancellor not increased the threshold to £12,500, the £50,000 earner would have £5,315 in National Insurance every year from April.

When do you stop paying National Insurance?

At the moment you stop paying National Insurance when you reach the state pension age, at 66. The state pension age is scheduled to rise to 67 between 2026 and 2028.

However, the Government has announced a radical shift in this policy and from April 2023, all working pensioners will pay 1.25pc National Insurance contributions on their earned income.

It will not be paid on income from the state pension, pensions or income earned via investments such as dividends and buy-to-lets.

Do you pay National Insurance on pension income?

You do not pay any National Insurance on pension income, although you may be liable to pay income tax. The tax-free annual personal allowance for income tax is currently £12,570. 

Can you beat the National Insurance rise?

There is one way workers can beat the National Insurance rise. Using a “salary sacrifice” pension scheme or paying for workplace benefits, such as nurseries, cycle-to-work schemes and ultra-low emission vehicles, can reduce your National Insurance bill.

Both the worker and employer agree to cut the employee’s salary and pay the equivalent sum into a pension, or use the money to pay for workplace perks. This will reduce an National Insurance bill, because the salary sacrificed is not liable to income tax or National Insurance.