One of the many big changes in the Chancellor’s mini budget was the reversal of the recent increase in National Insurance contributions
The Government had increased employees’ and employers’ National Insurance contributions (NICs) as of April 2022. It had been a contentious move by the Government, with some people seeing the policy as a necessary way of generating extra revenue for the NHS and social care, and others questioning if a tax on workers is a positive step at this stage.
But on 23rd September, the new Chancellor of the Exchequer announced that the NIC increase would be reversed, starting with the November pay month.
What does this mean for your payroll and NI contributions?
In essence, the reversal of the temporary NIC increase will revert contributions back to their pre-April 2022 levels. The 1.25 point increase will therefore only affect contributions made in payroll months between April 2022 and October 2022.
The Chancellor’s announced measure will:
- Reduce the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 National Insurance contributions from 6 November 2022.
- Repeal the Health and Social Care Levy Act 2021. As a consequence, the 1.25% Health and Social Care Levy will not come into force from 6 April 2023 as previously planned.
Because NI for directors is calculated on an annual basis, a blended rate for 2022/23 will apply which is:
- Earnings between £11,909 and £50,270 – Director 12.73%, Company 14.53%
- Earnings above £50,270 – Director 2.73%, Employer 14.53%
For self-employed people, the blended rate for class 4 contributions is 9.73% on profits between £11,909 and £50,270 and 2.73% on any profits above £50,270.
The class 1A rate for benefits in kind will be 14.53%
Talk to us about planning for the NIC changes
Reverting legislation that has only been active for five months is clearly less than ideal – and is likely to create a lot of work for your payroll team in the run-up to the November payroll.
If you’d like to talk to us about this new NI measure, we’d be happy to help you plan your cancellation of the temporary increase. We’ll help you return your NIC rates to the correct figures and can work with you to update your payroll systems ready for November 2022.
Where we are managing the payroll on your behalf, the changes will be applied by us; there is nothing required on your side.
Get in touch to discuss your NI contributions.
All information provided in this article is for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant. It should in no way be considered as advice provided by Hawthorne Tax Consultancy or any of its principals. All information is deemed to be correct at the time of writing.