From 6 April 2022, the rate of national insurance paid on earned income rose by 1.25%, as part of a package of measures to help fund national healthcare costs.
In addition to this, The Chancellor announced in his Spring Statement in March 2023 that the threshold at which employees and the self-employed will start making NIC payments has increased to £12,570, which matches the income tax personal allowance. However, this change isn’t effective until July 2022. So, for the 2022-23 tax year we have slightly more complicated calculations to consider.
The changes discussed above have affected employees, employers and the self-employed, as illustrated in the tables below.
The effect of the increase can be shown in the table below:
What can be done to reduce your NIC burden?
There are many areas that employers can look at to reduce the NIC burden on both the employees and the employer:
- Implementing a salary sacrifice arrangement for pension contributions which generate NIC savings for both employees and employers.
- Making wider use of benefits exempt from NIC (e.g. annual medical check-ups, eye tests, trivial benefits and workplace parking).
- Consider implementing a salary sacrifice scheme for electric vehicles – the benefits of this are many (environmental, facilitating recruitment/retention of staff and improving the employer’s ‘ESG” credentials)
- Also don’t forget employers can claim the Employment Allowance (currently £5,000 pa) each year. This means that they can reduce their NIC burden up to the allowance level.
To reduce an NIC burden for the self-employed would mean reducing taxable profits. Whilst many would not want to stop their business making sales or growing profitably, the ultimate aim is to reduce taxable profits by considering any of the following:
- Ensuring that all business expenses are reviewed/accounted for correctly.
- Making sure all business expenses are paid for by the business (not the individual personally) so that a deduction can be made from taxable profits.
- All available reliefs are claimed.
- All appropriate capital allowance claims on capital purchases are taken
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