National Insurance Contributions (NICs) have been the subject of every budget announcement this year. If you haven’t kept up with the reversals and reversals of the reversals, we summarise the key changes here.
As part of a measure to raise additional funds for health, social care and to help cover the costs of the Covid-19 pandemic, NICs were raised by 1.25% across the board from 6 April 2022.
This was due to be repealed in 2023/24 and replaced by a new Health and Social Care levy, also at 1.25%.
In October 2022, then Chancellor Kwasi Kwarteng repealed both the above. NICs were reduced back down by 1.25% as of November 2022. The Health and Social Care levy has been scrapped.
In the 2022 autumn budget, Jeremy Hunt confirmed NIC thresholds would freeze until April 2028.
Directors and employees
Salary from directorships and employment income is subject to both employee’s and employer’s Class 1 NICs.
The rates for 2022/23, and then 2023/24 to 2027/28 are set out below:
** Upper earnings limit is £967 per week for 2021/22 and 2022/23.
One important point to note is that, although employees above state pension age do not pay employees NIC, they will be liable to pay the health and social care levy when it comes into effect from 6 April 2023.
|Employee’s Class 1 NICs||6 April 2022 to 5 November 2022||6 November 2022 to 5 April 2023||2023/24 tax year|
|Earnings below primary threshold Primary threshold: 6 Apr 2022 – 5 Jul 2022 £190 per week 6 July 2022 onwards £242 per week||0%||0%||0%|
|Earnings between primary threshold and upper earnings limit||13.25%||12%||12%|
|Earnings above upper earnings limit Upper earnings limit: £967 per week||3.25%||2%||2%|
Employees are subject to Class 1 primary NICs based on their weekly or monthly pay, however the calculation is annual for directors. This means directors NICs are blended rates for the 2022/23 tax year only as follows:
|Director’s Class 1 NICs||2022/23 tax year only|
|Earnings below primary threshold Primary threshold: £229 per week||0%|
|Earnings between primary threshold and upper earnings limit||12.73%|
|Earnings above upper earnings limit Upper earnings limit: £967 per week||2.73%|
|Employer’s Class 1 NICs||6 April 2022 to 5 November 2022||6 November 2022 to 5 April 2023||2023/24 tax year|
|Earnings below secondary threshold Secondary threshold: £175 per week||0%||0%||0%|
|Earnings above secondary threshold for employees||15.05%||13.8%||13.8%|
|Earnings above secondary threshold for directors||14.53%||14.53%||13.8%|
|Class 1A and 1B NIC on staff benefits||14.53%||14.53%||13.8%|
Jeremy Hunt confirmed in the autumn 2022 budget that the annual employment allowance of £5,000 will remain in place for 2023/24, which is an allowance against employer’s Class 1 secondary NICs.
Self-employed, partners and LLP members
Trading profits and profits from partnerships and LLPs are subject to both Class 2 and Class 4 NICs.
Class 2 NICs are a flat rate contribution at £3.15 per week for 2022/23, rising to £3.45 in 2023/24.
Class 4 NICs are a profit-related contribution. Because of the changes throughout 2022/23 to NICs there are blended contribution rates as follows, with percentage rates expected to return to 2021/22 levels from 2023/24 onwards:
|Class 4 NICs||2022/23 tax year||2023/24 tax year|
|Profits up to the lower profits limit Lower profits limit: £11,908 per annum||0%||0%|
|Profits between lower profits limit and upper profits limit||9.73%||9%|
|Profits above the upper profits limit Upper profits limit: £50,270 per annum||2.73%||2%|
Pushing Income into 2023/24
You may wish to consider legally delaying some income, e.g. waiting to pay bonuses to directors, or delaying staff benefits, by paying them after 6 April 2023 to avoid the higher blended rates in 2022/23.
However, delaying employment income will only offer a NIC saving for directors, as employees are already back on ‘normal’ NICs from November 2022. Any saving in NICs will likely be outweighed by income tax if the additional bonus pushes the director over an income tax threshold.
Take care not to take the additional income into a higher income tax bracket by accelerating it to 2021/22, i.e.
For example, paying a bonus of £10,000 to a director on 30 April 2023 rather than 5 April 2023 would save £73 NICs for a director earning over £50,270 per annum and £73 for the employer.
- However, if the director’s income crosses into the higher rate band from the basic rate band, this could result in extra income tax of up to £2,000
- If the director’s income then crosses into the additional rate band from the higher rate band, this could result in extra income tax of up to £500
For 2023/24, the income tax rate bands are changing as follows:
|Band||Taxable income||Income tax rate|
|Basic rate||£12,751 – £50,270||20%|
|Higher rate||£50,271 – £125,140||40%|
|Additional rate||Above £125,141 Reduced from £150,000||45%|
Catherine is a director/shareholder in Anchor-S Ltd. Her only income for the year ended 5 April 2023 is a salary from employment of £126,000. 2022/23 has been a phenomenal year for Anchor-S Ltd. Her employers would like to pay her a bonus in April 2023 of £20,000 as a reward for her performance to utilise the lower NIC thresholds for directors and employers in the 2023/24 tax year, rather than pay it at quarter end in March as usual.
Catherine would be well advised not to agree to this. Because the income tax threshold for the additional rate of income tax is changing on 5 April 2023, a £20,000 bonus for Catherine would be charged to income tax at 40% in March, but it would be charged at 45% in April. This means Catherine will pay an extra £1,000 income tax by trying to avoid a small additional NIC charge.