National Insurance Rise Explained: What Does it Mean for Your Business?

As of April 2022, National Insurance contributions will increase by 1.25%. The Government announced the National Insurance rise in September 2021, confirming the rise will give way to the Health and Social Care Levy that is set to come into force in April 2023.

As an employer, the increase will mean you have to contribute more National Insurance on behalf of your employees, but it also means your employees will need to pay more National Insurance from their salary, too. Big financial changes are afoot and you need to make sure your business can cope with what’s to come in line with other price hikes.

With that in mind, what exactly is the National Insurance price rise and what does it mean for your business?

Why is there a National Insurance rise?

First and foremost, it’s important to identify why National Insurance is rising. Following the Covid 19 pandemic and the pressures it put on the NHS, the Government announced the new Health and Social Care Levy – an additional income tax, to be introduced from April 2022.

The Government has said the additional tax will be used to pay for NHS and social care costs. From the money raised via the increase, £1.1 billion will be allotted to Scotland, £700 million to Wales, and £400 million to Northern Ireland by 2025. The rest will be spent on care in England.

For now, the Health and Social Care Levy will be paid for under National Insurance, but in April 2023, it will appear as a standalone tax underneath National Insurance. When it becomes a separate deduction, National Insurance will return to its 2021 rate.

Employees will see their pay fluctuate as a result of the tax increase, and for employers, payroll systems will need to be updated to reflect the changes.

Who does the National Insurance increase apply to?

Now you know why National Insurance is increasing, it’s important to understand who it affects. National Insurance is divided into categories, and three of these categories will be affected by the increase. They are:

• Class 1 – workers who earn over £190 per week and who are under the State Pension age. National Insurance is deducted automatically by their employer.
• Class 4 – Those who are self employed and who earn profits in excess of £9,881 per year.
• Class 1A and 1B – employers who pay National Insurance on benefits or expenses from their employees.

It’s important to note that whilst the money generated from the increase in National Insurance will be distributed to all four nations of the UK, the increase only affects taxpayers in England.

How will the National Insurance increase work?

Whilst there will be an initial upfront cost that taxpayers need to bear the brunt of, most people should find that come July, their National Insurance payments will actually decrease. This is because the Government is changing the NI threshold in July.

At the moment, anyone earning more than £9,880 will need to pay NI; however, in July, the NI threshold is increasing to £12,570. This means most people should see their contributions decrease. From an employment perspective, this means you’ll need to readjust your payroll again come July.

National Insurance rise calculator

To budget properly with the new increase in mind, it’s important to know how much more you’ll be paying under the NI increase 2022.

Employees

Previously, employees paid 12% if they earned more than £190 per week, and those who earned more than £967 per week paid an additional 2%. As the new tax rates come into force, employees earning over £187 per week will now pay 13.25% National Insurance, with those earning more than £976 per week paying an additional 3.25%.

For context, using an NI increase calculator, employees earning £20,000 per year would have paid £104 per month in NI, but as a result of the pay increase, from April 2022 they will pay £112 per month. That being said, in July when the threshold changes, they will pay £82.

On the flip side, someone earning £70,000 per year would have paid £440 NI per month, with that increasing to £499 from April 2022. When the threshold changes in June, they will pay £470.

Employers

From a business perspective, you’re likely wondering how this increase will affect what you pay. Well, from April 2022 you will pay 15.05% NI compared to 13.8% previously.

Self employed

If you’re self employed, you will pay 10.25% on profits between £9,568 and £50,270 per year, and an additional 3.25% on anything over that. This is up from 9% and 2% respectively.

How your business can manage the national insurance rise

There are lots of accounting and financial changes for your business to be aware of this year, with NI being just one of them. With so many changes afoot, you must have a solid plan on how to deal with everything, especially National Insurance.

The best way you can prepare for what lies ahead is to invest in comprehensive payroll and accounting software. This will help you automatically calculate how much each employee should be paying, as well as how much you need to contribute. It will also mean you’re able to make changes once again in July when the threshold changes.

How Accountancy Cloud can help your business prepare for the NI increase in 2022

If you’re looking for the best and most hassle free way to prepare for the 2022 NI increase, we can help. Our team of financial experts is on hand to talk you through your books and help you make growth plans, despite rising costs.

On top of this, our award winning accountancy and payroll software offer a trouble free approach to managing your business’ books and staying on top of things like tax increases.

Get in touch with us today to learn more about how we can help.