National Insurance Contributions are changing…are you ready?
National insurance contributions are changing come April 2022, and in this week’s blog, our founder and CEO, Kieran Phelan is providing an overview of the changes that are coming and the consequences for employers, employees and individuals – who will all be hit with bigger tax bills. Read on to see how this will impact you…
What changes are coming to National Insurance Contribution?
Most of us will have noticed that there has been a rise in both employee and employers National Insurance contributions. It is a hotly debated topic with people in both camps. However, regardless of its current status an increase in National Insurance Contributions is coming at the beginning of the new tax year in April 2022 with an increase of 1.25%. In April 2023 this additional element will be split out into a separate ‘Health and Social Care’ levy., so it is safe to stay this increase is here to stay in one form or another.
What are the consequences of the National Insurance Contribution?
The increase will have ramifications for all individuals, we’ve broken it down as follows:
Consequences for ‘the employee’
- For employees with annual earnings between £9,568 and £50,270 the National Insurance rate increases from 12% to 13.25%, an increase of 10.4% above current levels.
- On earnings over £50,270 the rate is over half as much again, changing from 2% to 3.25%.
The Times online has a number of helpful tables that breakdown the nuts and bolts against earning and we’ve shared them here:
How much more employees will pay in national insurance
| Annual salary | Current annual payment | Annual payment from April 2022 |
| £20,000 | £1,251 | + £89 |
| £30,000 | £2,451 | + £214 |
| £40,000 | £3,651 | + £339 |
| £50,000 | £4,851 | + £464 |
| £60,000 | £5,078 | + £589 |
| £70,000 | £5,278 | + £714 |
| £80,000 | £5,478 | + £839 |
| £90,000 | £5,678 | + £964 |
| £100,000 | £5,878 | +£1,089 |
Source: https://www.blickrothenberg.com/insights/tax-tools/tax-calculator/
How much extra will employees pay each month?
| Annual salary | Monthly gross salary, before tax, NICs or pension contributions are deducted | Current monthly National Insurance contributions | Additional monthly National Insurance contributions |
| £20,000 | £1,667 | £104 | + £7 |
| £30,000 | £2,500 | £204 | + £17 |
| £40,000 | £3,333 | £304 | + £28 |
| £50,000 | £4,167 | £404 | + £38 |
| £60,000 | £5,000 | £423 | + £49 |
| £70,000 | £5,833 | £439 | + £59 |
| £80,000 | £6,667 | £456 | + £70 |
| £90,000 | £7,500 | £473 | + £80 |
| £100,000 | £8,333 | £489 | +£90 |
Source: https://www.thetimes.co.uk/money-mentor/article/national-insurance-increase-2022/
Consequences for the self-employed
For the self-employed the rules change again. Gov.uk has a good summary here. In essence, the Class 4 NICs will increase from 9% to 10.25%. A higher rate will be charged on income in excess of £50,270 increasing from 2% to 3.25%. Again, The Times online have a helpful breakdown here:
How much extra will the self-employed pay each month?
| Annual profits | Monthly gross profits, before tax, NICs or pension contributions are deducted | Current monthly Class 2 and Class 4 National Insurance contributions | Additional monthly National Insurance contributions |
| £20,000 | £1,667 | £91 | + £8 |
| £30,000 | £2,500 | £166 | + £19 |
| £40,000 | £3,333 | £241 | + £29 |
| £50,000 | £4,167 | £316 | + £39 |
| £60,000 | £5,000 | £334 | + £50 |
| £70,000 | £5,833 | £357 | + £60 |
| £80,000 | £6,667 | £368 | + £71 |
| £90,000 | £7,500 | £384 | + £81 |
| £100,000 | £8,333 | £401 | +£91 |
Source: https://www.thetimes.co.uk/money-mentor/article/national-insurance-increase-2022/
Consequences for Companies
Companies will be affected in terms of dividends, fringe benefits, directors loans with other additional consequences for employers. Here’s the breakdown:
Dividends: Basic rate of tax will go from 7.5% to 8.75%, the higher rate band will go from 32.5% to 33.75% and the top (additional rate) band will increase from 38.1% to 39.35%.
Directors loans: If you have any overdrawn directors’ and shareholders’ loans which give rise to a Section 455 charge, the rate at which that is levied will change from 32.5% to 33.75%.
Employers: Your payroll will see a NIC increase from 13.8% to 15.05% for all income per employee above £8,840 per annum.
Employer’s allowance: The employer’s allowance, which for many businesses will cover the first £4,000 of some company National Insurance costs, is still available and will be increasing to £5,000. The allowance will be extended to cover the new Health and Social Care Levy when that becomes a separate item.
Fringe benefits: The Class 1A rate which employers pay on many fringe benefits, such as company cars and (ironically) private medical insurance, increases from 13.8% to 15.05%. Where PAYE settlement agreements are in place, the Class 1B rates increase in the same way.
Don’t forget that further changes were made as announced in the Chancellor’s Spring Statement, details of which can be found in our blog HERE