The National Insurance Increase

Definitely expected, but what does it mean for businesses?


On Tuesday, the government announced an extra tax to fund social care across England, and also help the NHS through its recovery after the pandemic. The aim of the tax increase is to raise £12bn each year to make sure that people in England don’t pay more than £86,000 in care costs from October 2023.

For most, this was expected, but there has been criticism from many across business.

The new plans in a nutshell…

Employees, employers and the self-employed will all pay 1.25% more tax from April 2022.

For the first year (April 2022 – March 2023), the tax will be collected as an increase in National Insurance (NI). But from April 2023, National Insurance will return to its current rate, and the extra tax will be collected as a new Health and Social Care Levy.

Unlike National Insurance, this new levy will also be paid by state pensioners who are still working.

The National Insurance increase will apply to:

  • Class 1 primary (paid by employees)
  • Class 1 secondary (paid by employers)
  • Class 4 (paid by self-employed)
  • Dividends (via an increase in the tax rate)

How will this affect employees?

For most, the NI rise will go unnoticed each month, with the 1.25% rise equating to just an extra £130 each year or £10 per month for someone with an annual salary of £20,000:

Annual salary        Increase
£20,000                  +£130
£30,000                  +£255
£50,000                  +£505
£100,000                +£1,130

The above assumes the NI threshold remains the same.

What’s the impact on businesses?

Just like employees, employers will also have to pay an additional 1.25% National Insurance on top of the contributions they’re already paying. With many businesses already under pressure, clearly, this will have an impact on businesses as it makes hiring staff more expensive.

Employers cover more of the cost of NI than employees, with a lower threshold on which they pay:

Annual salary        Increase
£20,000                  +£139
£30,000                  +£264
£50,000                  +£514
£100,000                +£1,139

Businesses who have financial strength will absorb the increased costs comfortably, but for other employers that are currently struggling, it may mean they cut back on recruitment, salaries or other benefits.

With two changes over the next 2 years, there’s also going to be admin work to do behind the scenes to make sure payroll is set up correctly and communicated effectively to employees.

What about the self-employed?

Unfortunately, the increased rates will be felt harder for the self-employed as paying taxes through Self-Assessment means the rate is based on income after business expenses. It therefore directly impacts how much drawings can be paid.

How can we help?

At DJH Mitten Clarke we have a team of tax and payroll specialists who have already swotted up on the new changes, so we’re ready to help you through the process. If you’d like to talk through what this means for your business, please call us on 01782 279615 and we’ll work with you to make sure you’re ready too.

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