National Insurance contributions to rise by 1.25% points from April 2022 to fund social care costs 7 September 2021 at 1:51PM edited 27 January at 3:22PM in Cutting Tax 86 replies 6.3K views

MSE_James_F

National Insurance contributions (NICs) will rise by 1.25 percentage points from April 2022, Prime Minister Boris Johnson has today announced. The move is in a bid to help fund health and social care costs.

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'National Insurance contributions to rise by 1.25 percentage points from April 2022 to fund social care costs'

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bluphoto

That language is absolutely clear that the CONTRIBUTION will increase in size by 1.25%. This is not the same as 9% contribution becoming a 10.25% contribution.

necsmith

"It will become a separate tax on earned income from 2023" [BBC report] - Does this mean that the levy will apply to occupational pensions from 2023?

bluphoto

I see bbc have changed the language from 1.25% to 1.25 percentage points, which is an entirely different (but at least clearer) thing.

Prism

So it seems to apply to 

Employers national insurance
Employees national insurance
Dividends

But not to pension scheme payments. 

purdyoaten2

bluphoto said:

I see bbc have changed the language from 1.25% to 1.25 percentage points, which is an entirely different (but at least clearer) thing.

It is - the devil is on the detail e.g.

’ People who work after the state pension age will also be told to pay 1.25 per cent’

Currently they pay 0%. That’s an infinitesimal increase!

necsmith

Prism said:

So it seems to apply to 

Employers national insurance
Employees national insurance
Dividends

But not to pension scheme payments. 

Until 2023 when the levy will be applied to earned income

• The tax will begin as a 1.25% rise in National Insurance from April 2022 and a tax on share dividends will also go up by 1.25%
• It will become a separate tax on earned income from 2023 [BBC Report]
  

biscan25

This is an utterly ridiculous policy, for a number of reasons:
- Generationally unfair
- Disproportionately affects lower earners, as NI is a flat tax
- Not paid by pensioners. The people still in employment after SPA are those that cannot afford to retire.
-Not paid on rental income - a glaring omission, but I suspect this will be addressed in subsequent amendments
- Actually a 2.5% tax increase. Whereas people like myself will have to meet the employer cost straight away, as I am a contractor employed within an umbrella company, normal salaried people will have it passed on through reduced future payrises.
- A direct tax on jobs, at possibly the worst possible time.

In an ideal world I think that care costs should be met via a tax on wealth, since this is both the most fair and efficient. Alternatively using income tax the share of cost could be met by those more able to bear it.

FatherTireseus

necsmith said:

"It will become a separate tax on earned income from 2023" [BBC report] - Does this mean that the levy will apply to occupational pensions from 2023?

As far as I know,  pension income does not count towards the definition of earned income,  so based on my initial reading, the answer to your question is no. I read it as, rather than being lumped in with NI as a deduction on your payslip from 2023 it will be shown as a separate line item. A bit like the social care precept is shown separately on your council tax bill. I'm sure more details and views will be forthcoming if I have read it incorrectly. 

Grumpy_chap

necsmith said:

Prism said:

So it seems to apply to 

Employers national insurance
Employees national insurance
Dividends

But not to pension scheme payments. 

Until 2023 when the levy will be applied to earned income

• The tax will begin as a 1.25% rise in National Insurance from April 2022 and a tax on share dividends will also go up by 1.25%
• It will become a separate tax on earned income from 2023 [BBC Report]
  

Is that part in bold simply the failure of rapid 24-hour news allowing a grammatically incorrect sentence through the editing process?

Dividends are not earned income now.  It does not seem likely that the charge will be applied for one tax year only.

Pensions are also not classed as earned income.  It does not seem likely that the charge would be exempted for one year only.

necsmith

FatherTireseus said:

necsmith said:

"It will become a separate tax on earned income from 2023" [BBC report] - Does this mean that the levy will apply to occupational pensions from 2023?

As far as I know,  pension income does not count towards the definition of earned income,  so based on my initial reading, the answer to your question is no. I read it as, rather than being lumped in with NI as a deduction on your payslip from 2023 it will be shown as a separate line item. A bit like the social care precept is shown separately on your council tax bill. I'm sure more details and views will be forthcoming if I have read it incorrectly. 

Earned Income

Earned income is any payment an individual receives as a result of an employment, from a trade, profession or vocation they have, or from a pension they receive.

gov.uk

I read it differently, but the devil will be in the detail.