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Increase to National Insurance reversed

One of the significant changes in the Chancellor’s mini budget 2022 was the reversal of the recent increase in National Insurance (NI) contributions.

The Government had increased employees’ and employers’ National Insurance contributions (NICs) on 1st April 2022. A controversial move, as some people saw the policy as a necessary way of generating extra revenue for the NHS and social care, and others questioned if a tax on workers was sensible.

On 23rd September 2022, the new Chancellor of the Exchequer announced the NIC increase would be reversed, from 1st November 2022.


What does this mean for your National Insurance (NI) contributions?

The reversal of the NIC increase will revert contributions back to pre-April 2022 levels. The 1.25-point increase will only impact contributions made in payroll months between April 2022 and October 2022.

There are 4 main types of National Insurance (see below), not all are impacted by this latest change.

Class of NI

Paid by

1

Payable by employees and employers

2

A flat rate payable for the self-employed

3

​Voluntary contributions paid by people who wouldn’t otherwise have to pay, but want to avoid gaps in their National Insurance record, and make sure they qualify for benefits such as the state pension or maternity allowance

4

Payable on profits above a certain level by the self employed

The Chancellor’s measures will:


  • Reduce the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 National Insurance contributions from 6 November 2022.

  • Abolish the Health and Social Care Levy Act 2021. Consequently, the 1.25% Health and Social Care Levy will not come into force from 6 April 2023 as previously planned.


NI for directors is calculated on an annual basis, a blended rate for 2022/23 will apply which is:


  • Earnings between £11,909 and £50,270 - Director 12.73%, Company 14.53%

  • Earnings above £50,270 - Director 2.73%, Employer 14.53%


For self-employed people, the blended rate for class 4 contributions is 9.73% on profits between £11,909 and £50,270 and 2.73% on any profits above £50,270.

For benefits in kind the class 1A rate will be 14.53%.

The HMRC calculator is a useful tool to see how NI changes may impact you financially.

Planning for the NIC changes

Obviously, it's less than ideal to revert legislation that has only been active for five months. The repercussions will mean additional work for payroll teams in the run-up to the November payroll.


Where your accountant is managing payroll on your behalf, the changes should be applied automatically; there is nothing required on your side. However, if you manage your own payroll, it is worth taking some time to ensure you have made the necessary updates ahead of 1st November 2022.


If you are unsure about how changes announced in the mini budget 2022 speak to your accountant or business coach.

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