By Ben Chernoff
National Insurance contributions (NICs) will rise by 1.25 percentage points from April this year, affecting employees, employers and the majority of self-employed workers.
Despite numerous calls to delay or withdraw this increase, the Government seems set on proceeding with this change, which will help to raise more than £12 billion for the NHS and social care system.
It is important that the recruitment sector makes employers aware of these changes, as the increase in NICs will initially affect everyone over the age of 16, but below the state pension age, earning more than £184 per week through employment or with profits of £9,568 or more a year in self-employment.
The 1.25 percentage point increase also applies to employer NICs, minus any reliefs that a business may be entitled to. Those using temporary agency workers or looking to hire permanent staff will need to consider the additional employment costs of this change.
From 2023, the Health and Social Care Levy will formalise the new rules and will also require individuals working above the State Pension age to contribute as well.
Currently, this group are not required to pay any NICs, adding further complexity and cost to the employment of staff.
For a typical basic rate taxpayer earning the current UK median income for this group of £24,100, they will have to pay an additional £180 a year, while for those earning the median higher rate income of £67,100, they would have to pay an additional £715.
The increase will not apply to Class 2 NICs, which is the flat rate paid by the self-employed with profits above the Small Profits Threshold (currently £6,515 per year) or Class 3 NICs, made up of voluntary contributions from taxpayers to fill in gaps in their contributions’ records to qualify for benefits.
Reducing the burden of National Insurance
Unlike other forms of tax, NICs can be more challenging to plan around for employers, which means that it can be harder to reduce the impact of rises, such as these.
However, there are steps that can be taken to reduce the burden on employers by shifting salaried income into other employment benefits, such as salary sacrifice and electric company cars and pensions.
Ultimately though, most businesses are likely to see their employment costs increase from April this year.
Here to help
If you or your clients are concerned about the rising cost of employment, why not find out how we can help? We can offer advice on your payroll and remuneration strategies, alongside our other business advisory services, so please contact us today.