Last week Boris Johnson announced an increase in National Insurance contributions by 1.25%. This will impact both employers and employees as part of his ‘Build Back Better’ initiative. We want to let you know how this may impact you and your business.
Why is the NI increase happening?
This change will come into effect from 6th April 2022-5th April 2023 to help fund the NHS and social care. The increase will generate approximately £12 billion/year which will help alleviate backlogs and strengthen the social care system. After April 2023 this will be replaced by a “health and social care levy”, a separate tax based on earned income.
Who will the National Insurance increase affect?
The 1.25% increase will be applied to all employers and employees. From April 2023, the health and social care levy will also apply to those still working over the state pension age of 66.
Dividend tax rates on shares will also increase by 1.25%, so if you own shares in a company this will also affect you.
How much more National Insurance will I have to pay?
The impact of these changes will vary depending on whether you are employed or self-employed.
Employees who currently pay Class 1 NI contributions:
Current payments – 12% on all pay over £797-£4189/month or £9568-£50,270/year, with earnings over £50,270 charged at 2%.
Their employer then contributes 13.8% on top of this (secondary Class 1, 1A and 1B).
Increased payments – 13.25% on all pay over £797-£4189/month or £9568-£50,270/year, with earnings over £50,270 charged at 3.25%.
Employer contributions will increase to 15.05%.
Self-employed who pay Class 2 and Class 4 NI contributions on profits:
Current payments – £3.05/week on anything earned over £6515 (Class 2), along with a 9% contribution on earnings between £9568-£50,270 (Class 4). They are also taxed 2% on earnings over £50,270.
The increase is set to only apply to Class 4 contributions with Class 2 remaining at £3.05. Therefore self-employed contributions will increase to 10.25% and 3.25%.
From April 2022 basic-rate taxpayers will pay 8.75%; higher-rate taxpayers will pay 33.75% and additional-rate taxpayers will be charged 39.35% on this income.
Now is the time to prepare
In the short term this change is likely to have the greatest impact on small businesses by making employing staff more expensive, leaving less money to invest in the company. It will also have an impact on the self-employed and sole traders. If you want more advice on how this will affect you specifically and how you can prepare for the change, please get in touch.
If you are in between accountants or if you’d like to see how we can support you give us a call today on +44 (0)1372 374143.
The Love Your Accountants office is based in Epsom, Surrey. We welcome business from around the UK, particularly Surrey and London.
For full details on the announcement visit https://commonslibrary.parliament.uk/research-briefings/cdp-2021-0139/