The Primary Threshold (PT), the level at which employees begin paying National Insurance contributions (NICs), is set to increase to £12,570 from 6 July 2022 – a move designed to lessen the impact of the Government’s decision to increase NIC rates by 1.25 percentage points in April 2022.
This rise will bring the rate in line with the current personal allowances for income tax, therefore, those earning below this amount will pay no tax or NICs. Many people should see benefit from the cut to their NICs as a larger proportion of an individual’s income will be free of the charge – something which will be welcomed given the current cost of living crisis alongside rising inflation.
What does this mean for those who are self-employed?
Alongside the increase to the PT, the Lower Profits Limit (LPL), the point at which self-employed individuals start paying Class 4 NICs, will also be increased to £12,570.
By increasing the LPL, Class 2 NICs liabilities are also reduced to nil on profits between the Small Profits Threshold (SPT) and LPL, ensuring that no one earning between the SPT and LPL will pay any Class 2 NICs, but will continue to accrue National Insurance credits.
Will employers’ contributions change?
The Secondary Threshold, the point at which employers must start making contributions, remains unchanged at £9,100 per year. This means that employers will continue to pay NICs for all employees once they earn £9,100 and over.
Has the threshold for Directors increased?
As Director’s in limited companies pay NICs on an annual basis, they are calculated using annual earnings rather than what they earn in each pay period. For 2022-23, the PT rate of £11,908 will apply, If you are a director, it may be worth reassessing your remuneration strategy following NI changes and increasing dividend tax rates to ensure you are minimising your tax burden.
Get in touch
To accommodate the NIC threshold increase, payroll software, including HMRC’s Basic PAYE Tools, will need to be updated before processing and reporting any payments on or after 6 July 2022.
For more information on the NIC increase, or any other payroll requirements, please get in touch with payroll director, Julie Mason, by clicking the button below.