What's happening with National Insurance Contributions?

UPDATE: SEE OUR LATER ARTICLE National Insurance rise will be reversed from 6 November 2022

National Insurance Contributions (NICs) have been much in the news since September 2021 when a temporary 1.25% increase in the rate from April 2022 was announced. 

The increase is meant to channel funds into social care. In fact the temporary NIC rise is supposed to be reversed next April to be replaced by a new Health & Social Care Levy that will also apply to individuals working above State Pension age.

For tax year 6 April 2022 to 5 April 2023, Employer Class 1, employee Class 1, Class 1A, Class 1B and Class 4 NICs increased by 1.25%.

From 6 April 2023, NIC rates return to 2021/22 levels, and the levy will become a separate new tax of 1.25%.

See our separate article on NIC rates and thresholds from April 2022.

HMRC asked employers to include the following message on payslips: ‘1.25% uplift in NICs, funds NHS, health & social care’. However, there is no obligation to do so.

From April 2023, the levy will be reported as a new tax through RTI and will need to be shown on payslips as a separate 1.25% levy.

Thresholds from 6 July 2022

There was an outcry when the NIC rate rise was announced as this would have left many on low pay worse off when facing rising fuel bills. So, it was subsequently decided that from 6 July 2002 the NIC thresholds would increase, meaning there are two different levels of NIC thresholds in the same tax year, adding to the complications for payroll administrators.

The primary threshold for Class 1 NIC increased from £190 a week (£9,880 a year) to £242 a week (£12,570 a year) from 6 July, bringing it in line with the frozen personal allowance. 

For company directors, who are subject to special rules, the equivalent annual amount from July became £11,908.

From 2023/24, all employees will share the same £12,570 annual threshold. The maximum potential Class 1 employee NICs saving in 2022/23 is £269.

For the self-employed, the lower profits limit increased from £9,880 to £11,908 in 2022/23, rising to £12,570 in 2023/24. Class 2 NICs are not payable if profits are below these limits. The maximum potential Class 4 NICs saving in 2022/23 is £208.

There is no change to the Class 1 secondary threshold (employer), but the employment allowance is raised from £4,000 to £5,000 for 2022/23 onwards

Could NICs change again this September?

SEE OUR LATER ARTICLE National Insurance rise will be reversed from 6 November 2022

As part of the Conservative Party leadership hustings, Liz Truss has suggested that the April 2022 1.25% NIC increase will be reversed.

This could be announced in a much-rumoured Emergency Budget on 21 September under a new Chancellor.

What is not clear is whether the reverse will have immediate effect for the next payroll, thus further increasing the work of payroll administrators, or whether it will take effect from April 2023 when it would have been reversed anyway. Further clarity is needed on this point.

Further information

For more information about the NIC changes, please see our other articles where we also examine the impact on dividends:

• Social care tax of 1.25% hits directors, workers and investors
• Health & Social Care Levy from April 2022

See also HMRC's calculator: Estimate how the National Insurance contributions changes will affect you

If you have any questions regarding any of the above, don't hesitate to contact your normal Bishop Fleming advisor or a member of the Employer Solutions team.