National Insurance changes – more calculations!
As you can imagine, it’s hard enough trying to keep up with year to year changes in the various corporate and personal tax rates, bands, thresholds etc. So of course, the Chancellor has thrown in a little mid-year adjustment to check we’re paying attention!
From 6 July 2022, both the employed and self-employed can earn a bit more money before paying National Insurance Contributions (NICs). That figure (the Primary Threshold, or PT) is now £12,570, which is up £2,690 from £9,880. If the £12.5k number looks familiar, it’s because that is also the standard tax free allowance (the amount you need to earn before you start paying PAYE (income tax).
Don’t forget, the actual rate of NICs increased on 6 April by 1.25 percentage points. This is not a cancellation or reversal of that policy; but does try to mitigate what was otherwise a highly unpopular move during this period of inflation and general uncertainty.
We review directors’ tax planning year to year and, pre dividends, some of our clients have been taking the old £9,880 figure as a salary, others the £12,570. The difference is not material, and comes down to availability of Employment Allowance and feelings towards current versus future tax mitigation.
Those on the £12.5k figure will not see a salary change; those on the £9.9k figure will now be wanting to take three months at the old rate (April – June 22) and nine months at the new PT rate (July 22 – March 23). The total being £11,908.
Every little helps, but more than that it’s the feeling of knowing you’re as tax ‘optimised’ as possible – within the rules of course!
For the avoidance of any doubt, there is no change to the rates that apply to employers NICs – this is a measure aimed at helping the individuals not the corporates.
Background
To add some context to the figures above, for an employee on £30,000 the net NICS impact in 22/23 is roughly as follows:
- Weekly NICs before 1.25 percentage point increase: £46.43
- Weekly NICs after 1.25 percentage point increase: £51.27
- Weekly NICs after adjustment to PT: £44.41
The most recent change therefore means this employee would see an extra £30 in their monthly pay packet; but that’s after the start of the tax year kicked off with a £21 reduction!
