Following the Government’s social care reform announcement, National Insurance contribution (NIC) rates are due to increase by 1.25 percentage points from April 2022. Employers and employees across the UK may be wondering what this means for their finances, their individual and corporate tax obligations, and – for employers – how it impacts payroll services.
To help you understand the imminent changes, the tax experts at Qualitas outsourced payroll have put together this short guide to help you:
- understand the changes from April 2022 and beyond
- communicate the impact to your employees
- know what to do next to remain compliant.
Your National Insurance responsibilities as an employer
All employers collect their employees Income Tax deductions alongside Class 1 National Insurance contributions via the Pay As You Earn (PAYE) scheme. Additionally, employers are responsible for paying secondary contributions on employees’ earnings and benefits.
The Class 1 levy due from the employee depends on each individual earnings, as well as NI category letter.
Class 1 secondary contributions due from employer depends on total NIC bill. Around 90% of small businesses may be able to claim the £4,000 employment allowance, as long as their NIC bill sits below £100,000.
What do the new National Insurance changes mean for employers?
From April 2022, Employee Class 1 NICs and dividend tax rates collected by employers through PAYE are set to increase by 1.25 percentage points. This takes employer contributions to 15.3% on earnings above the secondary threshold.
Class 1 secondary employer contributions will also increase by 1.25 percentage points, applying to Class 1A and Class 1B employer contributions too.
What do the new National Insurance changes mean for employees?
Everyone over 16 who works and earns over £797 monthly is liable for Class 1 National Insurance contributions. This applies to employed and the self-employed.
At the moment, employees Class 1 contributions sit at 12% on all earnings between £797 and £4,189 monthly. Any earnings above this amount are liable for Class 1 contributions at 2%.
Annually, this equates to earnings between £9,568 per year incurring National Insurance rates of 12% and earnings above £50,270 charged at 2%. It is assumed that these rates will rise to 13.25% and 3.25%, respectively.
The average salary of £30,000 is likely to pay an extra £255 each year in National Insurance contributions, whilst those on higher salaries of £50,000 per year will pay an additional £505.
See our table below to understand and communicate individual impact to your employees:
| Income | Current National Insurance Payments | National Insurance Payments after Rise |
| £10,000 | £51.84 | £57.84 |
| £20,000 | £1,251.84 | £1,382.24 |
| £40,000 | £3,651.84 | £4,032.24 |
| £60,000 | £5.078.84 | £5,709.24 |
| £80,000 | £5,478.84 | £6,359.24 |
| £100,000 | £5,878.84 | £7,009.24 |
Qualitas – Outsourced Payroll Services
If you’re running payroll services internally and worried about managing the changes to PAYE and NIC, why not choose an outsourced payroll company?
At Qualitas Payroll Services, we guarantee efficient, low cost outsourced payroll services for businesses across the UK. Enjoy the peace of mind that compliance and processing responsibilities of PAYE and NIC are taken care of.
We keep pace so you don’t have to.
For more information about outsourcing your UK payroll, get in touch today.