child's hand in adult hand representing National Insurance
This month the Prime Minister announced an increase to National Insurance in 2022. Here we look at what this means and how small businesses and self-employed people will be affected. 

Changes to National Insurance 

National Insurance (NI) is due to increase from April 2022 to pay for health and social care costs. The 1.25% increase will apply to employees, employers, and self-employed people across the UK. From April 2023 it will be collected as a separate Health and Social Care levy (HSC levy), which will also be paid by state pensioners. 
 
The plan is expected to raise £36billion over the next three years, with the majority going to the NHS to help reduce the treatment backlog. An estimated £5.3billion a year will go to social care. 
 

The implications of the NI increase for small businesses 

National Insurance (NI) is due to increase from April 2022 to pay for health and social care costs. The 1.25% increase will apply to employees, employers, and self-employed people across the UK. From April 2023 it will be collected as a separate Health and Social Care levy (HSC levy), which will also be paid by state pensioners. 
 
The plan is expected to raise £36billion over the next three years, with the majority going to the NHS to help reduce the treatment backlog. An estimated £5.3billion a year will go to social care. 
 
If you’re an employer, you pay a percentage of Class 1 National Insurance for each employee whose salary is above the threshold of £8,840, so the increase will add directly to your costs. 
 
Currently, employees with earnings above the threshold you will pay 13.8% as an employer and employees with earnings above the threshold of £9,568 will pay 12% of their earnings up to £50,270 a year and 2% above this amount. 
 
Overall, the government estimates that UK employers will pay an additional £6.5billion and employees £4.3billiion. 
 
Income from dividends paid to company shareholders will also see a 1.25% tax rate increase, although currently ISA allowances will remain unchanged. 
 
If you’re a sole trader, you pay your taxes based on your self-assessment tax (SAT) return so the Class 4 NI contributions you make will be based on your profits after business expenses. Above the threshold of £9,568 you will currently pay 9% up to £50,270 a year and 2% above this amount. 
 
Here’s an outline of the current rate and how the new charges will apply: 
 
 
Employee class 1 NICs 
Main rate/higher rate 
Employer class 1 NICs 
Self-employed class 4 NICs 
Main rate/higher rate 
NI contributions for 2021/22 
12% / 2% 
13.8% 
9% / 2% 
NI contributions for 2022/23 
13.25% / 3.25% 
15.05% 
10.25% / 3.25% 
NI contributions and HSC levy from 2023/24 
12% / 2% and 
1.25% 
13.8% and 1.25% 
9% / 2% and 1.25% 
Threshold for NI contributions in 2021/22 
£9,568 
£8,840 
£9,568 
Based on an assessment by the Federation of Small Businesses (FSB) the total annual cost to small businesses could be £5.7bn. The Federation says that up to 50,000 jobs might be affected and it has called for the government to increase the Employment Allowance to help reduce the impact. 
 
The government’s figures show that around 640,000 – less than 10% – of almost six million businesses in the UK will receive full protection from the increased employer NICs contributions due to the Allowance. 
 

Steps you can take 

You can prepare for the changes by carefully reviewing your current financial position. Your bookkeeper can help you assess the impact of these changes and help you review and minimise your other expenses or plan for extra sales to cover the costs. 
 
If you run a salary sacrifice scheme for your employees then the amount they pay into the scheme is free from income tax and national insurance. Your employees might be happy to take a reduction in salary if you pay the difference directly into their pension, helping to reduce NI contributions. 
 
If you would like some help to work out how these changes will affect your business please get in touch. 
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