Finance > Tax
National Insurance Explained
(Employee Focus)
Most people will be required to make National Insurance Contributions (NICs). These contributions raise money for the Treasury in order to provide us with retirement benefits such as the state pension, in addition to funding some social security benefits. There are multiple classes of National Insurance and different people/companies fall within these different classes.
As an employee, you make Class 1 (primary) NICs. Your employer also makes Class 1 (secondary) NICs.
The amount you have to pay is based on the level of your employment income.
How is National Insurance Calculated?
We will focus on the 2022/23 rates.
As an employee, your salary is often paid monthly and therefore, your NICs are calculated on a monthly basis.
Whilst you will not personally have to complete these calculations, as your NICs will be deducted before you get paid, it is worth understanding how they are calculated in order to predict your future take-home pay when your salary changes.
It is important to note that the 2022/23 tax year is slightly different than previous years as the Chancellor has set out that the threshold in which you start paying NICs will increase from 6 July 2022. We will look at this further below.
- Pre 6 July 2022 (6 April 2022 to 5 July 2022)
You do not make any NICs on the first £823 of your earnings per month (this is on your full earnings before tax is deducted i.e. your gross pay).
On earnings between £823 and £4,189 per month, you will make NICs at 13.25%.
On earnings above £4,189 per month, you will make NICs at 3.25%.
- Post 6 July 2022 (6 July 2022 to 5 April 2023)
From 6 July 2022, the threshold in which you start paying NICs will increase. Looking at the yearly thresholds, it has increased from £9,568 to £12,570 to become in line with the personal allowance.
Therefore, you do not make any NICs on the first £1,048 of your earnings per month.
On earnings between £1,048 and £4,189 per month, you will make NICs at 13.25%.
On earnings above £4,189 per month, you will make NICs at 3.25%.
| Salary | 6 April 22 to 5 July 22 (monthly NICs) | 6 July 22 to 5 April 23 (monthly NICs) |
|---|---|---|
|
£20,000 |
£111.79 |
£81.97 |
|
£30,000 |
£222.20 |
£192.39 |
It is your Pay Date that determines which rates to use for the calculation of NICs, and not when the work is done. Therefore, as the majority of employees get paid towards the end of the month, it will be your July pay that will see a lower NIC payment.
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Increase in National Insurance Rates
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