An increase in the amount of money that employers and employees must contribute towards National Insurance is coming into play in April 2022 – this contribution is also being referred to as the Health and Social Care Levy.
The National Insurance Act was introduced in 1911 as a national system of insurance, designed to protect working people against loss of income relating to sickness or unemployment. Now, it is a tax that is used to pay for the NHS, benefits and the state pension.
From 6 April 2022, National Insurance contributions will increase by 1.25% for both employees and employers. The Government has announced that employers’ National Insurance contribution will also be increasing by 1.25% from April 2022. This means the rate for employers will stand at 15.05% on all earnings above the secondary threshold for most employees. However, a the yearly £4,000 Employment Allowance that allows eligible employers to reduce their annual Employer National Insurance liability has been increased to £5,000.
Key points:
- Income tax rates, allowance and thresholds have not changed
- The NIC rates are increasing by 1.25%:
- Employers from 13.8% to 15.05%
- Employees from 12% to 13.25% (to UEL) and 2% to 3.25% (above UEL)
- The primary threshold will continue to be £9,880 p.a. up to 5th July 2022; it will change to £12,570 (and align with personal allowance) from 6th July 2022 – this is the threshold for Employee NIC. These changes will also apply to class 4 NIC (self-employed) with that rate increasing from 9% to 10.25% up to UEL/above UEL is also 3.25%.
- The secondary threshold will not change so this will remain as £9,100 per year – this is the threshold for Employer NIC
- Lower earnings limit will be £6,396 – earnings need to be above this threshold for state benefits (incl. having qualifying earnings for the state pension) to be payable
- Employment Allowance increases from £4,000 to £5,000
This means the recommended director’s minimum salary for tax efficiency will be £9,100 (£758.33/mth), or £11,908 if there are other Directors or employees, for the year, being the amount before any Employer NIC is payable.
Please also note that dividend tax rates will increase by 1.25% from 6th April 2022.
If you would like further detail on how this affects your circumstances, please contact us by email at enquiries@tenforwardfinance.co.uk or call us on 020 8446 6112
