HMRC Enjoys Income Tax Growth as Economy Recovers

As the economy begins to recover from the pandemic, HM Revenue and Customs (HMRC) is beginning to enjoy increased revenue streams again. What do you need to know about the National Insurance increases in April?

Today, HMRC recorded £597.6 billion in receipts for April 2021 to January 2022. This is £124.8 billion higher than the figure recorded a year earlier which is largely due to the economic recovery from the pandemic.

“The data shows the nation continuing to emerge from the pandemic with income tax and national insurance continuing to surge as more people return to work,” said Helen Morrissey, Senior Pensions and Retirement Analyst at Hargreaves Lansdown.

This was reflected in the increase in receipts for self-assessment income tax and National Insurance Contributions (NIC) for the period of April 2021 to January 2022. This value stood at £15.1 billion, which is £5.3 billion higher than in the same period a year earlier.

“The continuing rise in these receipts signals good news as we see more people in work but many of us are also bracing ourselves for the forthcoming 1.25 percentage point rise in national insurance - otherwise known as the Health and Social Care levy - due to come in April,” warned Morrissey.

With the economy recovering, it is important to keep up to date with the latest tax changes which are due to take place this year.

On 6 April, there will be a 1.25 percentage point increase on National Insurance which applies for one year and which is aimed at increasing funds for the National Health Insurance (NHS). The Government will then replace this with a separate 1.25% Health and Social Care levy from 6 April 2023.

If you are employed, an employee or self-employed you will be impacted by this increase. However, depending on your circumstances you could avoid one of these increases.

As an employer, even if your business makes Class 1, Class 1A or Class 1B National Insurance contributions you will still need to start paying the 1.25% increase from 6 April.

However, employers can apply for reliefs for employees who meet certain conditions. The employee should earn less than £50,270 per year and must either be an apprentice under the age of 25, under the age of 21, an armed forces veteran, or a qualifying Freeport employee.

For those who are self-employed the requirements become more complicated, and ultimately depends on the structure of your business. If you only pay Class 2 National Insurance contributions the increased national insurance will not apply to you this year.

Finally, if you are an employee, you will have to pay increased NICs from April this year and the replacement 1.25% levy from 6 April 2023. The only exception is if you are above the State Pension age and earn above the primary threshold, then you will not have to pay the increase in National Insurance this year.

For those who are unaware of the current tax allowances and thresholds, sign up for our free taxfacts guide. This guide will provide you with detailed information about allowances and thresholds for business and personal use.