How Will The National Insurance Rise Affect My Business?


Back in the Autumn of 2021, the Government announced that they would be implementing a National Insurance rise by 1.25%, across employee, self-employed and employer contribution statuses.

There will also be a rise in the dividends tax rate, also following the same format with a 1.25% increase.

The changes to the National Insurance thresholds will be in effect as of April 2022. 12 months after the changes come into effect, the National Insurance tax rise increase of 1.25% will be replaced by a new Health and Social Care Levy. April 2023 will also see pensioners required to make contributions for the first time ever too – with all working pensioners required to pay 1.25% national insurance contributions on their earned incomes.

The main rates of employee and self-employed national insurance contributions are paid on earnings or profits above £9,568. From April 2022, this threshold will increase to £9,880.

An employee on Class 1 contribution will expect to see their rate rise rise from 12% a year to 13.25% a year. For a example, an employee earning an annual income of £20,000 would usually pay £1,251 a year for National Insurance. After the rise, they will likely pay £1,382.

Self employed workers currently pay Class 2 or Class 4 contributions on their earnings, with National Insurance main rates increasing from 9% to 10.25% following the price hike. For example, a self employed worker earning an annual income of £20,000 would usually pay £1,097 a year for National Insurance. After the rise, they will likely pay £1,227.

Employers with workers on payroll will also see their National Insurance contribution increase from from 13.8% to 15.05% for all income per employee above £8,840 annually. Despite this, employers allowance will still be available to cover the first £4,000 of National Insurance costs. Class 1A rates that some employers pay on fringe benefits such as company cars, will also see an increase from 13.8% to 15.05%

The National Insurance is likely to impact employees at all levels of the salary scale.

The government have expressed that the reasoning behind the rise in National Insurance contributions was to assist with increased spending on health and social care services, with the pandemic and the cost of living being major factors behind the decision. It is forecasted that with the increase in National Insurance contributions, the government will raise approximately £14 billion. With inflation rising, many called on the tax hikes to be scrapped. However, in an article in the Sunday Times in January of this year, PM Boris Johnson and Chancellor of the Exchequer Rishi Sunak both agreed that the changes were “the right plan” and something that “must go ahead”.

Navigating the world of National Insurance contributions can be tricky. 

Here at Abbeygate Accountancy, we are able to advise employers on how you can remunerate your valued employees to avoid being penalised by tax rises.

Cashflow forecasting is the best way to plan the impact on each individual business.  If you would like support with a 12 month cashflow forecast then get in touch with Archie Balls to discuss this in more detail.  Forecasting can start from as little as £399+VAT and can make a significant impact on your business.