Today I will set out the details of the changes to National Insurance Contributions announced by Rishi Sunak on 23rd March, which come into force this month:
Employers’ class 1 NIC
The secondary class 1 NIC rates and thresholds (paid by employers) were not altered in the Spring Statement, with the rate increased from 13.8% to 15.05% w.e.f. 6th April 2022.
For 2022/23 the various secondary class 1 NIC thresholds are:
|Secondary class 1 NIC||Thresholds|
|For most employees the employer pays at 15.05% on wages above:|
|If the employee is an apprentice or aged under 21 employer pays class 1 NIC at 15.05% on wages above:|
Employees’ class 1 NIC
The rates of primary class 1 NIC paid by employees are increasing on 6 April 2022 from 12% to 13.25% and from 2% to 3.25% for 40% taxpayers. The lower earnings limit (LEL) has not been changed from the proposed level for 2022/23, which will be: £123 per week or £6,396 per year. On earnings between the LEL and the primary threshold, the employee pays class NIC at 0%, thus receives NIC credit for those wages.
The upper earnings limit (UEL) for 40% taxpayers has also not been changed and will stay at the proposed thresholds for 2022/23 of £967 per week, £4,189 per month, £50,270 per year. On earnings above the UEL, the employee will pay class 1 NIC at 3.25% for 2022/23.
The complication introduced by the Spring Statement is that the primary threshold (PT) for class 1 NIC will change part way through the tax year on 6 July 2022. The employee will pay class 1 NIC at 13.25% on earnings between the LEL and the PT for 2022/23.
|Class 1 NIC primary thresholds||6 April to 5 July 2022||6 July 2022 to 5 April 2023|
As NIC is paid according to the pay period, and is not cumulative, only nine months of earnings (from July 2022 to March 2023) will benefit from the higher Primary Threshold.
Self-employed class 4 NIC
The lower profits limit (LPL), from which class 4 NIC becomes payable, is also increased to align with the personal allowance of £12,570, but over two years. The upper profits limit is frozen at £50,270.
|Tax Year||Main rate||Additional rate||LPL||Upper profits limit|
For 2022/23 the LPL will be £11,908, that is nine months of the increased level, to make it equivalent to the same NIC allowance enjoyed by employees. Although the self-employed individual will pay class 4 NIC at the main rate of 10.25%, which is three percentage points lower than the class 1 NIC paid on the same income band by an employee.
Self-employed class 2 NIC
The class 2 NIC paid by the self-employed creates a contribution record for the individual, unlike the class 4 NIC, which is a pure tax. The class 2 small profits threshold (SPT) of £6,725 will remain in place from April 2022, but the individual will not be liable to pay class 2 NIC until their profits exceed the lower profits threshold for the tax year, which is aligned with the lower profits threshold for class 4 NIC.
In order to receive the class 2 NI credit the taxpayer will have to submit a tax return, although if they have no other income in the year they will have no tax to pay. The introduction of the class 2 NI credit does not eliminate the need for voluntary class 2 NIC payments. Where the trading profits are less than the SPT the individual may still wish to pay voluntary class 2 NIC in order to maintain their contribution record and qualify for the state pension, as well as for other contributory benefits.
Tax Accountant’s view
Now that the starting thresholds for all flavours of NIC and income tax are to be aligned, something I have been calling for now for many years, perhaps HMRC could also align all the associated rules for these two taxes; it really does make sense!
Also, my thanks go to Rebecca Cave of accountingweb for much of the detail in this week’s Blog.