3 Nov 2022
On 23 September the then Chancellor of the Exchequer, Kwasi Kwartang, delivered a mini budget in which he announced a series of fiscal measures for the UK. He stated that the 1.25% rise in National Insurance Contributions (NICs) – which came into effect in April – would be reversed on 6 November 2022. The current chancellor, Jeremy Hunt, confirmed in his 17 October statement that the policy to reverse the 1.25% rise in NICs would still go ahead. The dividends tax increase which was also implemented in April will stay in place. So what does the NICs reversal mean for your business?
On 6 April 2022 this year the rates of Class 1 NICs for employees and employers and Class 4 NICs for self-employed earners increased by 1.25 percentage points, as part of the government’s plan to pay for health and social care.
From November 6 2022 the main and additional rates of Class 1 employee NICs will fall by 1.25 percentage points to 12% and 2%. Class 1 employer NICs will also fall 1.25 percentage points to 13.8. You can visit the government’s website for information on National Insurance rates and thresholds for employers.
What you need to do in light of the NICs reversal will depend on your payroll processes. The 1.25% NICs increase is listed on employee payslips separately. The majority of payroll software systems will make an automatic adjustment to NICs levels in November.
If you don’t use another provider for payroll, and if you haven’t already done so, you should inform your payroll team to remove the 1.25% NIC uplift item from payslips from 6 November. If you can't update your payroll software in time, employees should receive the benefit in retrospect once the updates are implemented.
The NICs reversal means employee’s take-home pay will be slightly higher (averaging at around £14 per month). The more an employee earns, the more they benefit. Here’s a overview of what employees on different salaries can expect to take home per year:
Someone earning £20,000 will take home an additional £92
Someone earning £40,000 will take home an additional £343
Someone earning £100,000 will take home an additional £1,092
The higher threshold for NICs, which was announced by Sunak earlier in the year, is remaining. This means employees start making national insurance contributions when they earn £12,570 instead of £9,880. Together, the measures mean that nearly 30,000 will take home more pay than they did before April 2022.
The 1.25% NICs increase reversal also impacts self-employed earners, who pay Class 4 NICs. However, it’s important to note that due to payments being made on account, the impact of the increases and decreases to NICs won’t be felt until a year later.
The stamp duty cut is remaining. First-time buyers can save up to £6,250 when buying a home, with everyone else benefiting from savings of up to £2,500.
The plan to abolish the 45% top rate of tax has been scrapped.
The plan to cut income tax by 1p has been called off indefinitely.
The Energy Price Guarantee will now end in April 2023, with a Treasury-led review into means-tested support for households and businesses after April.
Corporation tax will be raised from 19% to 25%.
Plans for VAT-free shopping for international tourists have been reversed.
Plans to repeal IR35 have been cancelled.
The dividend tax cut scheduled for April 2023 has been scrapped.
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Jeremy Hunt will be making a fiscal statement on 17 November. Keep an eye on our blog to find out how the measures announced could impact the SME community.
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