National Insurance Contributions

From 6 April 2022, the rates of Class 1 NIC paid by employers and employees, and of Class 4 NIC paid by self-employed people, were increased by 1.25 percentage points. This means that employees pay 13.25% from the primary threshold up to the upper earnings limit and 3.25% above that; employers pay 15.05% on all earnings above the secondary threshold. Self-employed people pay 10.25% on earnings between the lower and upper profits limits, and 3.25% above the upper limit. These increases were a temporary measure for the tax year 2022/23, pending the introduction of a separate Health and Social Care Levy (HSCL) to be paid by the same people on the same income from 6 April 2023.

The Chancellor has decided to cancel the HSCL altogether, and to cancel the increases in NIC from the earliest practicable date – 6 November 2022. It is recognised that some payroll software may not be able to deliver the reduction to the old rates in time for the November payroll, but affected employees should receive a rebate retrospectively with their December payments.

In March 2022, Chancellor Sunak moderated the effect of the increase by significantly increasing the primary threshold at which employees’ contributions start, to match the level at which income tax starts to be payable – an annual figure of £12,570. Once again this was done ‘as soon as practicable’, taking effect on 6 July. Although this increase in the threshold was explicitly intended to give relief for the effect of the increase in rates, the threshold has not been reduced again following the cancellation of the rate increase.

Because NIC are calculated on individual payments of wages and salaries, it is possible though complicated – to have different rates and thresholds applying in different parts of a tax year. Thresholds and rates for self-employed people are set for the tax year as a whole, and the computation of Class 4 NIC is therefore even more complicated. The figures for both the threshold (£11,908) and the rates (9.73% and 2.73%) are described as ‘blended’ based on fractions of the year before and after 6 July and 6 November.

The cost to the Exchequer of reversing the NIC increase for five months of the current tax year is nearly £7 billion; the cancellation of the HSCL will mean a reduction in expected revenues of approximately £17 billion each year going forward. The government estimates that 28 million taxpayers will pay an average of £330 a year less tax as a result. In spite of this very significant reduction in revenue, the Chancellor stated that funding for health and social care – which the HSCL was supposed to provide – will be maintained ‘at the same level as if the levy was in place’ (without saying where the money will come from).