New NICs threshold takes effect from July 2022

The National Insurance contributions threshold rose to £12,570 from July 2022, aligning it with the income tax personal allowance. The change was announced in the Spring Statement, when the Chancellor said he would increase the NICs threshold by £3,000, instead of £300 as previously proposed, saving all but the lowest earners £330¹.

The effect is that almost all workers now have a tax-and-NICs-free allowance of £1,050 a month, or £80.40 a week, and that from July only one calculation is needed to convert gross to net earnings. All employees pay tax and NICs at a combined rate of 33.25% on earnings over £12,570, so workers lose about a third of their earnings over £1,050 a month¹.

The gain is not the same for everyone. For the 2.3 million working people claiming Universal Credit, the £330 increase in net earnings is offset by a reduction in UC of a little over £180, because UC is tapered at 55p for every extra pound earned once a work allowance has been used up. That leaves a net increase in income of £150 a year¹.

For claimants who also receive Council Tax Reduction, the position is weaker again. The standard CTR taper is 20%, and the combined taper with UC is 64% once the interaction between the two is included. For claimants getting both benefits, the net increase in income from the higher NICs threshold is not £330 but £120¹.

Working Tax Credit recipients are unaffected by the clawback, because tax credits are based on gross earnings before tax and NICs, so they receive the full £330 benefit of the increase¹.

The analysis does not include the effect of the 1.25% increase in NICs that came into effect in April 2022. As earnings rise above £12,570, the rate rise cancels out the higher threshold, with anyone earning more than £35,000 paying more tax and NI overall¹.

Why it matters for households

The threshold change affects employees from July 2022 and is worth up to £330 a year to those earning enough to have paid NICs on earnings between the old and new thresholds. Because the threshold now matches the income tax personal allowance, the same £12,570 figure governs both, and the combined marginal rate above it is 33.25%¹.

For households on means-tested benefits, the cash gain is smaller than the headline figure, because benefit awards are calculated on net earnings and fall as earnings rise. The reduction is £180 for a UC claimant earning just above the new threshold, and more where Council Tax Reduction is also in payment¹.

The Spring Statement also included an extra £500m for the Household Support Fund, a discretionary scheme run by local authorities to provide emergency support, and a £150 rebate on Council Tax bills for anyone in Band D or lower¹.

What happens next

The Chancellor proposed cutting the basic rate of income tax from April 2024, a measure the analysis says provides most help to people earning at the top of the basic tax band on over £50,000 a year¹.