At Spring Statement 2022, which was delivered by the Chancellor on 23 March, important changes to National Insurance were announced that will impact both employed and self-employed individuals with National Insurance Contributions (NICs) liabilities.
The Government has, for some time, harboured an ambition to align the starting thresholds for NICs and income tax; an ambition that will now be met from 6 July 2022.
Currently, the threshold at which employees are required to pay income tax on earnings is £12,570 and, from 6 July, this same threshold will also apply to the payment of Class 1 NICs. In 2021-22, the threshold was £9,568. The threshold for the period 6 April 2022 to 5 July 2022 will be £9,880.
Why 6 July 2022?
We assume the delay in implementation is to allow software providers some time to update their existing provisions for PAYE administration.
It is expected that the changes will exempt some employees from paying NICs altogether, whilst representing an annual saving for almost three quarters of those earning above the £12,570 threshold.
Given that employees will be paying Class 1 NICs at a rate of 13.25% from 6 April 2022, the increase in the starting threshold equates to a saving of £356 per annum.
It’s worth bearing in mind that the saving will not be this for the first 12 month period in 2022/23, as the new starting threshold does not apply until 6 July.
There is, of course, a ‘breakeven point’ where the NI tax cut will simply counteract the 1.25 percentage point increase taking effect in April. After that point, some higher earners will see their NI liability increase following the changes.
Broadly, those earning less than £38,000 can expect to make a saving when comparing what they would have paid in NI under the old rules, to what they will pay under the new rules.
Employers should note that the threshold applying to them is being kept at £9,100 for 2022-23. This means that employers will not be receiving the same assistance as employees to meet the 1.25% increase, resulting from the Health and Social Care (HSC) Levy.
How does the National Insurance threshold increase affect the self-employed and directors?
For self-employed individuals and company directors, who pay NICs on an annual basis, the 2022/23 limit is £11,908, being an annualised average of £9,880 and £12,570 (current Lower Profits Limit and increased Lower Profits Limit, respectively).
This represents a tax cut for approx. half a million self-employed individuals, dependent on their circumstances.
There was also further help for the self-employed with small profits. If profits fall between £6,725 (Small Profits Threshold) and £11,908 (Lower Profits Limit), they will receive a NI annual credit, which count towards contributory benefits, but without needing to pay any NI.
Spring Statement announcements
Other key announcements in last week’s Spring Statement, which you can read about in our brief summary here, included:
- Increase in Employment Allowance
- 0% VAT on energy efficient materials
- Fuel Duty cut
- Reduction to basic rate of income tax from 2024
How can George Hay help?
National Insurance should be taken into account with any tax planning, such as when to incorporate a business, or in relation to profit extraction.
If you would like to discuss what the upcoming changes will mean for you, and the tax planning opportunities available to you, contact one of our expert advisers in Cambridgeshire, Hertfordshire or Bedfordshire, today.
