National Insurance contributions have increased for employees and employers

19 April 2022

As of 6 April 2022, and for this tax year (until 05 April 2023), the amount of National Insurance you (and your employees) pay has increased. The contributions have increased by 1.25% and the Government has pledged that the money received as a result of the increase will be spent on the NHS, health and social care in the UK to help ease the burden.

The increase affects any employee who earns more then £9,880 per annum, though this figure will increase to £12,570 in July 2022.

The Government has issued detailed guidance which provides for when National Insurance Contributions are to be paid – Rates and thresholds for employers 2022 to 2023 – GOV.UK (www.gov.uk)

Who is affected by the increase?

If you’re employed and you pay class 1 National Insurance Contributions – for most people, the total percentage you will pay is 13.25% (up from 12%).
If you’re self-employed and you pay class 2 and class 4 National Insurance Contributions. However, the amount payable will be dependent upon profit. As before, National Insurance is usually paid through Self-Assessment. The tax rate on dividends has also increased by 1.25%.
If you’re classed as being employed, but also do self-employed work, the employer will deduct the usual class 1 National Insurance Contributions and for the self-employed element, you may have to pay class 2 and 4 National Insurance Contributions also. The amount to be paid will very much depend on the combined wages.

What this means is that, instead of paying National Insurance Contributions of 12% on earnings up to £50,270 and 2% on anything above that, employees will now pay 13.25% and 3.25% respectively. The self-employed will see equivalent rates go up from 9% and 2% to 10.25% and 3.25%.

How does this affect employers?

The Company is also directly affected by the increase in National Insurance Contributions, as the Company pays employer’s National Insurance alongside the employees contribution. In reality, the increase is 1.25% for the employee but there is the same increase for employers, therefore meaning that an extra contribution of 2.5% is made.

As a result of the increase, we expect to see more employees of larger UK companies opting for salary sacrifice as a tax efficient way of making pension contributions, as this will reduce the salary on which employee and employer National Insurance Contributions are made.

Given that there is a cost of living crisis, it is inevitable that the increase in National Insurance Contributions will only exacerbate this, though we are hopeful that the increase on the allowance to £12,570 in July 2022 will help to ease the pressure on employees and employers alike.

For more information, or if you require advice on how the changes affect your business and your employees, please do not hesitate to contact our Employment Team on 01254 828300.