The Chancellor announced a number of tax changes during the March Spring Statement – most notably a rise in the threshold before employees are liable to pay National Insurance Contributions.
Change to Employees’ NIC threshold
The Class 1 Primary NIC Threshold (for employees) will rise to £12,570 for the 2022/23 tax year, aligning it with the income tax personal allowance.
Prior to this announcement, the Threshold was due to rise to £9,880.
However, given that it would be virtually impossible for payroll systems to adapt to the new Primary Threshold by the start of the new tax year on April 6th, it will come into effect from July 6th instead.
It is very unusual for tax bands to change within a tax year, so the change is bound to cause some extra work for accountants.
This move will soften the blow of the Health & Social Care Levy – which will see a rise in the rates of NICs levied following the 1.25 percentage point rise from April.
According to the Government, around 70% of people who pay NICs will pay less during the next year, even when the effects of the Health & Social Care Levey are taken into account.
What about Employers’ NIC?
The Secondary Threshold for NI – those paid by employers – will not rise to mirror the increase in the Primary Threshold.
From April 2022, the Secondary Threshold – when employers start to pay NIC on salaries – is £9,100.
Employment Allowance to increase to £5,000 per year for eligible businesses
Eligible businesses can claim back up to £5,000 in employers’ National Insurance from the Government, thanks to the Employment Allowance.
The current £4,000 annual limit will rise to £5,000 from April 2022.
Unfortunately, most contractor companies cannot benefit from this measure, as various restrictions exist; single-director companies, without employees, or where IR35 applies, for example, are ineligible.
- Fuel Duty will be cut by 5p per litre, until March 2023.
- The Chancellor has pledged to cut the basic rate of income tax from 20p to 19p before the end of the current Parliament.
- You can access the full text of the Statement here.
We will update our guides and calculators with the updated NIC threshold information shortly.