From yesterday, 6th April 2022, the National Insurance Contribution (NIC) rate was increased by 1.25% points which will affect both employees and employers alike. The increase, which was first announced last autumn, is going to put further pressure on businesses, and individuals. The increase forms part of the Health and Social Care Levy which is a new personal income tax designed to raise £39 billion to fund the NHS and social care to tackle waiting lists – for the first year it will be funded by the increased National Insurance Contributions but from April 2023, the National Insurance Contribution will decrease and the Levy will become a separate deduction in its own right.
What it means for employees:
Employees pay Class 1 Contributions which start on earnings over £187 at a rate of 13.25% a week and 3.25% on all other earnings over £976 per week (previously 12% and 2% respectively). The increase is going to hit families hard as the cost of living has also risen sharply in recent months, with increases in fuel, energy and food.
What it means for employers:
Employers will now pay 15.05% in National Insurance Contributions for their staff (previously 13.8%). Businesses should ensure their payroll solutions have been updated to handle the changes – we can confirm that Opera 3 has been updated to cater for the National insurance increase, please contact your Pegasus Partner for information and advice on installing this.
What it means for the self-employed:
The self-employed will pay Class 2 contributions of £3.15 a week on annual profits of £6,515 (previously £3.05 per week). Class 4 contributions are paid on taxable self-employed profits of 10.25% for profits between £9,568 and £50,270, and 3.25% on profits over £50,270. While self-employed company directors face a 1.25% increase on dividends.
The National Insurance rise comes in a long line of increasing pressures facing businesses, many of whom will find this extra financial cost a challenge whilst still recovering from the ramifications of the Covid-19 pandemic. However, ensuring you have a good payroll solution which is up-to-date to cater for the changing requirements will help equip you with the tools to seamlessly manage these changes, so you can focus on running your business.