National Insurance threshold changes are now in effect - what does this mean for your pay packet?

Thanks to changes to the National Insurance threshold that have just come into effect, everyone earning money through PAYE (in essence, workers who are employed rather than self-employed) will see a boost to their income of around £30 a month. 

Announced by Chancellor Rishi Sunak in his Spring Statement, the changes now mean that the threshold at which workers start paying National Insurance (opens in new tab) has increased from £9,880 to £12,570. Essentially, you can now earn more before you have to pay National Insurance. 

But the fact that National Insurance has gone up (opens in new tab) hasn’t changed. We are still paying 1.25 percentage points more National Insurance in the current tax year than we were in the last. 

So while the threshold change will mean that some people no longer have to pay National Insurance and others will be paying less compared to the previous tax year, some people will unfortunately still be paying more in National Insurance Contributions compared to the previous tax year. 

What does the change in National Insurance threshold mean for me? 

According to The Treasury, almost 30 million workers will benefit from this change. Here’s a rough guide as to how the change affects you, based on your salary. 

If you’re one of the 2.2 million people who earn less than £12,570, this change means you will be taken out of paying National Insurance altogether. You won’t pay income tax either, as the income tax threshold is also £12,570. 

If your salary is £20,000 a year, you would have been taking home around £1,431 per month (after National Insurance and income tax had been deducted). But now the increased threshold is in effect, you can expect your take home pay to be closer to £1,461, which is an extra £30 in your pay packet each month. (Bear in mind that this figure is indicative. It doesn’t take into account any pension or other deductions so your actual figure may be different). 

For those earning £35,000 a year, your take home pay is likely to increase from £2,265 to £2,295, which is again, an increase of about £30 each month. 

Those on salaries of £55,000 will also see a £30 monthly increase in their take home pay - from £3,339 to £3,368 (again, excluding pensions and other deductions). 

But when the threshold increase is coupled with the higher rates of National Insurance that came into effect in April, not everyone will be better off compared to the 2021/22 tax year. 

According to the Institute for Fiscal Studies, those earning less than £35,000 a year will pay less National Insurance overall in the current 2022/23 tax year than they did in the previous tax year. But those earning more than £35,000 a year will pay more in National Insurance in the current tax year, compared to the 2021/22 tax year. 

If you are self-employed, you will also benefit from the threshold change, but due to how you pay National Insurance, you won’t see the benefit until the start of the new tax year in April 2023.