National Insurance Contributions (NIC) rates increased for everyone by 1.25 percentage points from 6 April 2022, but the thresholds from which employee NIC are payable are being raised significantly from 6 July 2022 (see table).
This means that most employees will have more NIC deducted from their pay in April to June and more low earners will pay no NIC from July 2022 onwards.
The threshold from which employers must pay Class 1 NIC on their employees’ salaries is not changing, remaining at £9,100 per year (£758 per month) for most employees. Where the employee is an apprentice or aged under 21, the employer is not due to pay class 1 NIC until the employee’s pay exceeds £50,270 per year (£4,189 per month). This also applies for ex-armed services personnel in their first 12 months of civilian employment.
As NIC is paid according to the pay period rather than being cumulative, only nine months of employees’ earnings (from 6 July 2022 to 5 April 2023) will benefit from the higher threshold.
Company directors tend to be paid annually or quarterly. Those on quarterly pay must use the lower primary NIC threshold for the first quarter to 5 July 2022 and the higher primary NIC threshold for the remainder of the year. Directors who pay themselves annually must use a primary threshold of £11,908 for 2022/23.
The Employment Allowance has also increased from £4,000 to £5,000 for 2022/23. This allowance provides relief against employer’s Class 1 NIC. However, it is unavailable in certain circumstances, including where the director is the sole employee of the company.
Most self-employed individuals pay Class 2 NIC (which provides entitlement to state benefits) and Class 4 NIC (which doesn’t). Traders with low profits may only pay Class 2 NIC, which is £163.80 for 2022/23.
The profit levels from which both Class 2 and 4 NIC are payable are being aligned for the first time in the current tax year at £11,908. From 6 April 2023 the starting point for income tax, NIC and the new Health and Social Care Levy, all payable by the self-employed, will be aligned at £12,570.
This is a welcome simplification, but as with all tax there is a hidden complication.
To ensure that those traders who make losses or have low profits are still able to qualify for the state pension and other benefits, they can either get a free Class 2 NI credit or pay voluntary Class 2 NIC, within the bands in the table below.
To be eligible for the Class 2 NIC
credit the taxpayer must report profits at least equal to £6,725 on their self- assessment tax return for 2022/23.
Those who make lower profits, or a loss, can maintain their NIC contribution record for the year by paying Class 2 NIC on a voluntary basis.
These new rules are relatively complicated. Please contact us if you need to discuss the implications for you.