Fiscal Event: Changes to employed earners’ National Insurance Contributions
The NIC increase for 2022/23 has been repealed – but there’s more to this than meets the eye.
The NIC increase for 2022/23 has been repealed – but there’s more to this.
The 1.25 percentage point National Insurance Contributions (NIC) increase for 2022/23, intended as a temporary measure before the separate Health and Social Care Levy was to take effect, is to be removed. However, special blended rates, which are intended to reflect the different NIC rates in effect during the tax year, will apply in certain circumstances. Additionally, the timing of these changes means that some employers might be unable to apply the new rates immediately. This article summarises the key considerations.
Background
The Health and Social Care Levy Act 2021 introduced a temporary 1.25 percentage point increase to Class 1, Class 1A, and Class 1B NIC rates for 2022/23. This was a transitional measure before the separate Health and Social Care Levy was to take effect next year.
However, following the Government’s announcement that the new levy will be abandoned, the Health and Social Care Levy (Repeal) Bill was published on 22 September. If enacted in its current form, this will remove the temporary NIC increase from November and provide that, in certain circumstances, ‘blended’ NIC rates will apply for 2022/23. Additionally, the Health and Social Care Levy will now not come into force. No changes are proposed to the current NIC thresholds and earnings limits.
Reductions in Class 1 NIC for 2022/23
For employees other than directors who are subject to the annual earnings period rules (see below), each rate of Class 1 NIC will reduce by 1.25 percentage points in respect of all earnings (including those in the form of ‘readily convertible assets’ such as certain shares) received on or after 6 November 2022.
| Employed earners other than directors subject to the annual earnings period rules | |||||
| Payments of earnings on or before 5 November | Payments of earnings on or after 6 November |
||||
| Employee’s NIC | Employer’s NIC |
Employee’s NIC | Employer’s NIC |
||
Main rate
|
Additional rate |
Main rate |
Additional rate
|
||
| 13.25% |
3.25% |
15.05% |
12% |
2% |
13.8% |
However, special ‘blended’ rates of Class 1 NIC will apply to payments made to company directors who are subject to the annual earnings period rules.
For employee’s Class 1 NIC paid by directors, the blended main rate is 12.73 percent on earnings between the primary threshold and the upper earnings limit, and the blended additional rate is 2.73 percent on any further earnings.
Employer’s Class 1 NIC will apply to payments made to directors who are subject to the annual earnings period rules at a ‘blended’ rate of 14.53 percent.
Reductions in Class 1A and Class 1B NIC for 2022/23
The blended rate of 14.53 percent will apply to Class 1A NIC payable on Benefits-in-Kind (BIKs) for 2022/23.
However, for all employed earners (i.e., including company directors), Class 1A NIC on relevant termination and sporting testimonial payments will be due at the rate applicable at the time of payment (i.e., at 15.05 percent on such payments made up to and including 5 November 2022, and at 13.8 percent on such payments made on or after 6 November 2022):
| Item subject to Class 1A NIC | Rate of Class 1A NIC | ||
| Payments made on or before 5 November | Payments made on or after 6 November | Provided in 2022/23 |
|
| Termination payments |
15.05% | 13.8% | N/A |
| Sporting testimonials |
15.05% | 13.8% |
N/A |
| BIKs |
N/A |
N/A |
14.53% |
The blended rate of 14.53 percent will also apply to Class 1B NIC due in respect of PAYE Settlement Agreements for 2022/23.
What should employers do?
HMRC recognise that some employers may be unable to process these changes in time for their November payroll, so might only be able to apply the reduction from December or January. Where payroll software is not updated in line with the new rates by 6 November 2022, employee’s and employer’s NIC will be processed at the current (and, by then, incorrect) rates. In addition, for months where the incorrect NIC is processed, Real Time Information (RTI) submissions will also be incorrect.
Payroll teams will, therefore, need to be prepared to make amendments to the payroll upon the new rates being updated within their software. This will be required for each pay period for which incorrect NIC have been processed and reported. Changes to both the payroll and RTI reporting will be required to ensure employees have received all pay due, and their HMRC record includes the accurate NIC and pay subject to NIC for each threshold. Any late changes are likely to increase the payroll team’s workload as the amendments will be required in line with ‘business-as-usual’ delivery and therefore, consideration to this will be required.
We would recommend where employers are aware in advance that the change in NIC rates will not be applied as expected to their November pay, communications are issued to the workforce to advise when any corrections to their pay and records should be expected.
