bars

NIC thresholds change in July

Tax

National Insurance Contributions (NIC) rates increased for everyone by 1.25 percent from 6 April 2022 but the thresholds from which employee NIC are payable are being raised from 6 July as the table below shows.

This means that most employees will have more NIC deducted from their pay in April to June and more low earners will pay no NIC from July 2022 onwards.

The threshold from which employers must pay Class 1 NIC on their employees’ salaries is not changing, remaining at £9,100 per year (£758 per month) for most employees. Where the employee is an apprentice or aged under 21 the employer is not due to pay class 1 NIC until the employee’s pay exceeds £50,270 per year (£4,189 per month). This also applies for ex-armed services personnel in their first 12 months of civilian employment.

As NIC is paid according to the pay period rather than being cumulative, only 9 months of employee’s earnings (from 6 July 2022 to 5 April 2023) will benefit from the higher threshold.

Company directors tend to be paid annually or quarterly. Those on quarterly pay must use the lower primary NIC threshold for the first quarter to 5 July 2022 and the higher primary NIC threshold for the remainder of the year. Directors who pay themselves annually must use a primary threshold of £11,908 for 2022/23.

The Employment Allowance has also increased from £4,000 to £5,000 for 2022/23. This allowance provides relief against employer’s Class 1 NIC. However, it is unavailable in certain circumstances, including whether the director is the sole employee of the company.

Class 1 NIC primary thresholds6 April to 5 July 20226 July 2022 to 5 April 2023
per week£190£242
per month£823£1,048
per year£9,880£12,570

Self-employed NIC

Most self-employed individuals pay Class 2 NIC (which provides entitlement to state benefits) and Class 4 NIC (which doesn’t). Traders with low profits may only pay Class 2 NIC which is £163.80 for 2022/23.

The profit levels from which both Class 2 and 4 NIC are payable are being aligned for the first time in the current tax year at £11,908. From 6 April 2023 the starting point for income tax, NIC and the new Health & Social Care Levy, all payable by the self-employed, will be aligned at £12,570. This is a welcome simplification but as with all tax there will be hidden complication.

To ensure that those traders who will make losses or have low profits are still able to qualify for the state pension and other benefits, they can either get a free Class 2 NI credit or pay voluntary Class 2 NIC, within the bands in the table below.

To be eligible for the Class 2 NIC credit, the taxpayer must report profits at least equal to £6,725 on their self-assessment tax return for 2022/23. Those who make lower profits or a loss can maintain their NIC contribution record for the year by paying Class 2 NIC on a voluntary basis.

Profits in BandClass 2 NIC payable
Up to £6,724Voluntary at: £163.80 per year
£6,725 – £11,907NI credit given: zero payable
£11,908 or moreCompulsory payment: £163.80 per year

Let’s Talk

As these rules are relatively complicated, why not speak to a member of our tax team for help calculating your future position. Request a chat on Let’s Talk.

Sign up to our News and Updates

Cookies

By clicking OK you are agreeing to the terms set out in our Cookies Policy and Privacy Policy.

Cookie Policy » Privacy Policy »

OK