MILLIONS of workers are facing a tax hike in April that will cost them hundreds of pounds extra a year.
The Prime Minister is pushing ahead with his plan to increase National Insurance tax by 1.25 percentage points.
Here’s everything you need to know about the tax hike, when it’s happening and how it will affect your finances.
How are National Insurance rates changing?
You pay National Insurance when you’re employed and earning more than £9,568 a year, or £184 per week.
Self-employed people earning more than £6,515 also pay national insurance contributions.
The hikes will hit the finances of around 25million Brits, who will have to pay 1.25 per centage points extra in contributions.
This means rates will rise from 12% on earnings between £184 to £967 a week to 13.5%.
Charges on earnings over this amount will rise by 1.5 percentage points from 2% to 3.5%.
How much more National Insurance will I pay?
The amount of National Insurance you pay depends on how much you earn, with higher earners paying more.
Currently, someone earning £15,000 a year pays contributions of £652, while another person earning an annual salary of £25,000 is taxed £1,852 each year.
Figures from accountancy Blick Rothenberg for The Sun show how these NICs will go up when the hike is introduced in April this year.
On earnings of £10,000, it will be £5 a year more, and on earnings of £25,000, £193 more.
National Insurance payments on earnings of £35,000 will increase by £318 a year, and on a salary of £50,000, they will go up by £505.
The average salary in the UK is £29,900,
ABC Finance calculates that those on this wage will be forced to pay an increase of £255 a year and £21.25 a month in National Insurance
The increase is likely to hit those on lower incomes harder compared to the wealthier in society, the accountancy firm said.
That’s because contributions are calculated on a weekly or monthly basis, so seasonal workers or those on zero hours contracts may have to pay despite earning less than the annual threshold.
National Insurance is not the same as income tax, and you pay this separately on your earnings too.
When will I start paying more National Insurance?
Boris Johnson said the hike will kick in from April 2022, when the new tax year starts.
Tax rises are usually announced in the Chancellor’s annual Budget, such as when Rishi Sunak announcing a 25% corporation tax hike last March.
But the plan to hike National Insurance contributions was first revealed by The Sun in July last year.
National Insurance rates last increased in 2011, rising from 11% and 1% to the current rate of 12% and 2%.
The thresholds at which you pay each rate usually rise each year.
Why is National Insurance rising?
National Insurance contributions help to fund benefits like the State Pension, sick pay and unemployment benefits.
The bump will go towards a cap on care costs – meaning that pensioners won’t have to pay more than £86,000, and those with assets under £20,000 don’t have to pay a thing.
Revealing his plans to the Commons, Mr Johnson said: “It will be irresponsible to meet the costs from higher borrowing and higher debt.
“So from next April we will create a new UK wide 1.25% health and social care levy on earned income, hypothecated in law to health and social care with dividend rates increasing by the same amount.”
The announcement broke the Tory manifesto, which reads: “We promise not to raise the rates of income tax, National Insurance or VAT.”
Former Prime Minister John Major described the move as “regressive”.
“I don’t think they should use national insurance contributions, I think that’s a regressive way of doing it,” he said.
“I would rather do it in a straightforward and honest fashion and put it on taxation.”
Meanwhile former chancellor Lord Hammond slammed the plan when it was announced.
He told Times Radio: “Economically, politically, expanding the state further in order to protect private assets by asking poor people to subsidise rich people has got to be the wrong thing to do.”
Up to 700,000 self-employed face higher tax bills under Boris Johnson’s social care reforms.
Working pensioners will have to pay a new tax under the plans too.
Meanwhile council tax bills could also rise at the same time in a double whammy for households.