We look at the recent and future changes to National Insurance and the Health & Social Care Levy, and what it all means for employers.
Change to the National Insurance (NI) regime places major demands on employers, amounting to much more than making sure your payroll system crunches the right numbers. With NI contributions in an unusual state of flux, explaining the various phases will likely mean significant employee communication is needed too.
How is National Insurance changing and when?
The first change – which has already come into effect – is a one-year, 1.25% increase to Class 1 employer and employee NI contributions. As of 6 April 2022, where an employee previously paid contributions at 12% in the year to 5 April 2022, they will now pay NI at 13.25%.
From 6 April 2023, NI will revert back to earlier levels as the Health and Social Care Levy (HSCL) comes in. This is a standalone 1.25% levy that applies to earnings chargeable to Class 1 employer and employee contributions. The Levy will be reported as a new item through payroll and itemised separately on payslips. More significantly, the HSCL applies to employees over State Pension age, whereas the NI increase does not. The HSCL will be administered and collected by HMRC.
Communicating the change to employees
You may have been contacted by HMRC who are asking payroll software providers and employers to explain the initial NI increase using specific payslip messaging between 6 April 2022 and 5 April 2023. The message and wording are not mandatory, however, and given the complexity and pace of change, you might want to consider developing your own communications strategy as appropriate for your staff.
A higher NI threshold
In his Spring Statement, the Chancellor announced that the NI threshold would rise to £12,570 from 6 July 2022. This applies to the Class 1 Primary Threshold (the level of income at which employees start paying Class 1 NI contributions) and brings it in line with the Income Tax personal allowance. As the adjustment comes part-way through the tax year, employees will not feel the full benefit of the change until April 2023. That said, the government estimates a typical employee will still save over £330 from July to April.
The change to NI rates and introduction of the HSCL also has an impact on company directors and the self-employed. We provide more information on this in our Guide to the Spring Statement.