What the National Insurance Increase (and Drop) Means for Payroll in 2022

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Last updated: November 9th 2022

This tax year (April 6^th, 2022 – April 5^th, 2023), National Insurance (NI) contributions see some considerable change. As well as a scheduled increase from the beginning of the tax year (due to the health and social care levy for employers and employees), we have also seen an increase in the threshold at which people begin to pay National Insurance (NI) from July 2022, helping employees by giving them more money from their payroll.

Summarising the 2022/23 National Insurance (NI) changes

Originally, there was only supposed to be one major change to National Insurance this year. This was the raise in NI contributions (1.25%) – which came as a much-publicised break in the Conservative Party manifesto to not raise NI contributions. As announced by the Prime Minister, “this new levy will break our manifesto commitment, but a global pandemic wasn’t in our manifesto either.” This 1.25% increase is ringfenced for the Health and Social Care Levy.

Then, at the Spring Statement in late March 2022, Rishi Sunak, Chancellor of the Exchequer, announced that we would see an increase in the threshold of when people start paying National Insurance. This came in to force in July 2022.

As of November 6th, as announced first by Kwasi Kwarteng and then confirmed by Jeremy Hunt, there was a 1.25% cut to the National Insurance rate for both employees and employers. This was a reversal of the Health and Social Care levy, although the same amount of money will still be ringfenced for Health and Social Care.

This change aligns the threshold for NI with the threshold for income tax. The threshold change means employees will, on average, save an average of £330 each year. This will support those lower income households.

What is the Health and Social Care Levy?

The Health and Social Care Levy was introduced to help provide a much-needed stimulus to the NHS, and to fund important social care funds that had been extensively depleted over the past two years.

The 1.25% increase in NI will be deducted as National Insurance contributions this year, however, next tax year, beginning April 6^th, 2023, the public will lose the 1.25% increase on National Insurance, and will start paying the increase as a Health and Social Care Levy, separate to National Insurance Contributions. As of November 6th, it is unknown whether this change will carry over.

What are the 2022/23 changes for employers?

For employers, the changes are slightly simpler. The increase on employer contributions for NI has gone up to 15.05% on all applicable contribution categories. The threshold changes will not see any noticeable change to you, as an employer.

If you are a director, then the primary threshold for how much you pay on National Insurance does not change, regardless of the NI threshold change for employees.

How will the Health and Social Levy affect employers?

For this year, the only change will be on the National Insurance Contributions. The Health and Social Levy NI increase does not affect those that:

• Are apprentices under 25
• Are employees under 21
• Are veterans of the armed forces
• Are employees in Freeports (areas free from certain trade taxes) on less than £25,000 a year

From the 2023/24 tax year, these will revert to the 2021/22 tax rates, and the Health and Social Care Levy will be taken as its own separate tax, but in the same manner as National Insurance, with thresholds and lower earnings limits.

How the National Insurance changes affect payroll

This year is going to be a busy year for payroll professionals. As well as the increasing changes to Making Tax Digital, we’re also seeing changes to NI contributions throughout the year, rather than just at the beginning of the tax year.

And, with the cost-of-living crisis, it’s highly likely that we’ll see more changes later in the year, whether in some kind of relief payments, or more tax cuts to help stimulate the economy and boost income, especially for lower income families and earners.

Payroll software, such as Staffology Payroll Software, will update as and when the changes happen, meaning that you can keep on top of changes without any problems.

For painless payroll, choose Staffology

The two changes across the first few months of this tax year saw some difficulties for those running payroll manually, but with Staffology’s intelligent payroll software, all and any NI changes are applied automatically, meaning that you don’t need to worry about keeping on top of these changes.

Get a demo account today and see how Staffology Payroll could help you!

Duane Jackson, July 18th, 2022

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