On Tuesday 7 September not really by surprise thanks to the press the Government broke two of its manifesto promises.
- National Insurance Contributions (NIC) will increase by 1.25% for 2022/23 and
- the state pension ‘triple’ lock is to be downgraded to a ‘double’ lock restricting its increase by either inflation or 2.5% for 2022/23.
Also announced was the increase to the rate of tax dividends are charged at by 1.25% from 6 April 2022 and the introduction of the ‘Health and Social Care Levy’ from 6 April 2023.
National Insurance increase 2022/23
From April 2022 Class 1 National insurance (NIC) will increase by 1.25% for both employers and employees alike and Class 4 NIC payable by the self-employed.
At this stage it is not clear whether there will be any change in the thresholds for the different NIC rates for 2022/23 but this should be clarified in the Chancellor’s briefing on 27 October 2021.
For small businesses the £4,000 annual NIC Employment Allowance can be used against increased NIC liabilities.
The Health and Social Care Levy
After April 2023 this additional NIC charge will be replaced with a 1.25% ‘Health and Social Care Levy’ payable by employers employees and the self-employed; and NIC rates will be reinstated back to their current levels.
Also for the first time ever the 1.25% levy will be payable by pensioners still working above state pension age (who currently do not pay NIC).
This new Levy will be collected via PAYE and shown separately on payslips or collected via self-assessment.
In less than six months – the increases to NIC and the subsequent levy will create additional employment costs for many businesses – it is important to consider its impact on your cash flow and profitability for 2022/23 and later years.
If you do not already offer varied reward packages to employees it would be worth investigating how salary sacrifice arrangements (such as pension contributions electric cars) could help you manage your overall employment costs.
If you would like to discuss how this weeks announcements will affect you and your business call Alex Graham in our business services team on 01223 810100.
