National Insurance Contributions
The thresholds above which employers’ and employees’ National Insurance Contributions (NIC) become payable were set to increase from 6 April
in line with inflation in 2022/23, an increase of about £300 a year to £9,880. In a surprise move, the Chancellor announced that the employees’ threshold will further rise in July 2022 to match the level at which income tax starts to be payable – an annual figure of £12,570. This is a tax cut of £6.25 billion, a very significant figure, and will save employees up to £356 over a full year.
Because NIC on wages and salaries are calculated on individual payments, it is possible to change the thresholds in the middle of a tax year in this way. The delay is considered necessary to allow software providers to update their products so employers can calculate the NIC correctly. Thresholds for self-employed people are set for the tax year as a whole, and the 2022/23 Lower Profits Limit (LPL) for Class 4 NIC will be determined by apportioning £9,880 from April to July and £12,570 from July to the end of the year. The resultant figure is £11,908, above which Class 4 NIC will be payable on business profits.
The accrual of State pension benefits for self- employed people continues to depend on paying Class 2 NIC. Those with profits between the Small Profits Threshold and the LPL will not be required to pay Class 2 NIC for 2022/23, but will still earn a credit for the year.
The Employment Allowance reduces employers’ NIC for small businesses employing at least two people being paid above the Class 1 NIC Secondary Threshold, if the total employers’ NIC bill did not exceed £100,000 in the previous year. The Chancellor announced an immediate increase in this tax relief from £4,000 to £5,000, taking effect from 6 April 2022. It will benefit around 495,000 businesses by up to £1,000 each in 2022/23 at a cost to the Exchequer of £425 million.
Previously announced: Thresholds and rates (Table D)
The upper limits for employee and self-employed contributions remain aligned with the point at which 40% income tax is payable (£50,270 per year, or £967 per week), and are frozen at that level until the end of 2025/26.
Because the Scottish higher rate of income tax applies at a lower level than in the rest of the UK (above £31,092 of taxable income in excess of allowances rather than above £37,700), Scottish taxpayers can be liable to 41% income tax and full primary NIC on the same income (12% in 2021/22 rising to 13.25% in 2022/23).
Health and Social Care Levy
As announced on 7 September 2021, a new Health and Social Care Levy will be charged to raise £13 billion a year – dwarfing most of the other figures in the Budget policy decisions. In 2022/23, this will be achieved by raising the rates of NIC; in 2023/24, the levy will be formally separated from NIC and collected separately by HMRC, and will also apply to earnings of individuals who are above State Pension age and are therefore not liable to NIC.
From 6 April 2022, Class 1 NIC paid by employers and employees, and Class 4 NIC paid by self- employed people, will increase by 1.25%. This means that employees will pay 13.25% from the primary threshold up to the upper earnings limit and 3.25% above that; employers will pay 15.05% on all earnings above the secondary threshold. Self-employed people will pay 10.25% on earnings between the lower and upper profits limits, and 3.25% above the upper limit. The NIC rates will revert back to their previous levels from 6 April 2023 when the separate levy is introduced.
Working from home
During the pandemic, HMRC has been more generous than usual in allowing claims for tax relief by employees who have been required to workfrom home. This has covered exemption of some payments by employers to meet the extra costs incurred in relation to a home office, and also direct claims by employees for tax relief on some costs not reimbursed by employers. This relaxation applied for the tax years 2020/21 and 2021/22, but the normal rules will be restored for 2022/23.
An employer taking on ex-service personnel in their first year of civilian employment is eligible for a nil rate of employers’ NIC on earnings up to £967 per week. In 2021/22 the NIC has had to be paid through the PAYE system and reclaimed at the end of the year, but from 6 April 2022 the PAYE system is intended to allow for a nil rate of contributions under Real Time Information.