The Chancellor’s Spring Statement announced cuts to NI to offset the earlier hike. How will the cuts impact on you and your business?
NI increase to stay
In his Spring Statement Mr Sunak announced some relief from the unpopular across-the-board 1.25% NI hike which took effect on 6 April 2022. The changes announced will reduce NI for individuals and employers, although the reductions are achieved in different ways.
What’s changed?
For individuals the point at which they start to pay NI on their earnings (the earnings/profits threshold) has been aligned with the income tax personal allowance, that is £12,570 per year. There’s no corresponding change for employers, instead the employment allowance (EA) has been increased by £1,000 per year to £5,000.
What’s it worth for employers?
For employers that qualify for the EA the reduction can save them up to £1,000 in 2022/23 and later years. For example, if your business has an employers’ Class 1 NI liability for 2022/23 of £4,700 the increase in the EA will save you £700. If your NI bill is greater than £5,000 you’ll benefit from the full deduction.
What’s it worth to employees?
The new higher NI threshold won’t apply until July 2022. This means for employees the 1.25% NI hike will apply until the increased threshold kicks in. Therefore, an employee earning between £1,048 and £4,190 in a month will see their NI fall from July onwards by around £29. What’s more, those with a monthly salary of £3,457 or under will pay less NI than they did in 2021/22. In other words, the effect of the 1.25% hike in the NI rate will be more than wiped out by the new higher earnings threshold.
Other workers
For directors and the self-employed the increased threshold is worked out differently for 2022/23. Special rules mean the NI threshold is applied for the year as a whole rather than for each pay period as it is for employees. For 2022/23 it will be £11,908 and not £12,570, to reflect that the increase only applies from July. For 2022/23 this will save directors up to £268 and self-employed individuals £207. For later tax years the savings will be up to £350 and £275 respectively.
Employers get a reduction in their NI bills of up to £1,000 for 2022/23 and later years through an increased employment allowance. Employees and directors gain by up to roughly £260 for 2022/23 and by £350 for later years.
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