National Insurance increase reversal: What your business needs to know
In September, following campaigning by the Federation of Small Businesses (FSB), the Government announced the reversal of the increase of National Insurance Contributions (NICs) and the dividend equivalent, which had been introduced in April 2022. The reversal will come into effect in November of this year.
Our experts at FSB Workplace Pensions and Payroll and FSB Employment Protection explain what this will mean for your small business.
How can your business manage changes to National Insurance Contributions?
This change to National Insurance contributions applies to:
- Class 1 (paid by employees)
- Class 4 (paid by self-employed)
- secondary Class 1, 1A and 1B (paid by employers)
The class you pay depends on your employment status and how much you earn. If you are working age and earn less than the National Insurance Primary Threshold or Lower Profits Limit you will pay nothing. Employers will only pay on earnings above the Secondary Threshold.
You can find more information about how much employers should deduct from employees’ pay on the Government website.
What will the NICs rates be from 6 November?
From 6 November 2022 the main and additional rates of Class 1 employee NICs will be reduced by 1.25 percentage points to 12% and 2%. Class 1 employer NICs will also be reduced by 1.25 percentage points to 13.8%.
The Government website has information about rates and thresholds for employers.
How will your employees receive the cut?
Depending on your payroll processes, the majority of employees should receive the NI cut directly via their November payroll. Some employees may not benefit immediately from the in-year reduction in NICs rates if you’re unable to update payroll software before 6 November 2022. These employees should receive the benefit retrospectively once updates to the payroll have been applied.
The Government’s policy paper makes clear that the reversal to the National Insurance increase will only apply prospectively from 6 November 2022. However, in case the new reduced rates are not applied to employees’ pay from 6 November 2022 for any reason, UK Government guidance states that, “although individuals should contact their employer for refunds as a first port of call in all circumstances, there may be circumstances where individuals may need to apply to HMRC for a refund. For example, if their employer is no longer trading, or if an individual has moved roles and their previous employer has confirmed they are unable to issue a refund retrospectively themselves”.
What action do I need to take with my payroll?
Currently, the 1.25% increase to NICs has to be listed separately on payslips. Most payroll software will adjust the National Insurance levels automatically and apply these in November.
Payroll teams will need to be informed to remove this item from payslips from 6 November. If you don’t use an external provider for your payroll, will need to inform their own payroll teams to remove this 1.25% NIC uplift, which is currently listed separately on payslips, from 6 November.
Does this change the Employment Allowance?
No. The Employment Allowance, an FSB-designed measure to remove the first £5,000 off every small employer’s NICs bill, will be retained at the same level. This means that small businesses can employ four staff on the living wage without paying any employer NICs.
Most Read
