Following on from the Chancellor’s Budget in March, in this second post about the implications of the changes outlined by Rishi Sunak, we take a look at National Insurance.
Employees’ National Insurance (NICs)
Increase in the National Insurance threshold and Lower Profit Limit
From 6 April 2022, there has been an increase in the annual National Insurance Primary Threshold and the Lower Profits Limit.
Primary Class 1 contributions are paid by employees. To align the starting thresholds for income tax and NICs the threshold will increase from 6 July 2022 from £9,880 to £12,570.
The Lower Profits Limit is the point where the profits of the self-employed become subject to Class 4 NICs. From 6 April 2022 the Lower Profits Limit is increased to £11,908 and from 6 April 2023, the limit is increased further to £12,570.
In addition, there will be no Class 2 NICs on profits between £6,725 and £11,908. NICs of £3.15 per week are payable where profits are over £11,908.
Temporary increase in National Insurance rates
From April 2022, there will be a temporary increase in the rates of NICs payable for employees, employers and the self-employed as a transitional provision in readiness for the introduction of the Health and Social Care Levy from April 2023.
With the increase to the thresholds announced in the Spring Statement, from 6 July 2022 employees earning between £242 (£190 from 6 April to 5 July 2022) and £967 per week will pay NICs at 13.25%. Earnings over £967 will attract a 3.25% charge. Employers will pay 15.05% on their employees’ earnings over £175 per week.
Although employees’ NICs only become payable once earnings exceed £242 per week, any earnings between £123 and £242 per week protect an entitlement to basic state retirement benefits without incurring a liability to NICs.
For the self-employed, where their profits exceed £11,908 per annum, they will pay 10.25% on the profits up to £50,270 and 3.25% on profits over that Upper Profits Limit.
You should contact us before taking any action as a result of the contents of this summary.