Contractor Guide to National Insurance Changes
The government has increased the national insurance (NI) rate, effective 5th April 2022. This increase affects the amount that employers and employees pay. The following frequently asked questions will help you ensure you know how much you will need to pay.
Why is national insurance increasing?
National insurance has been increased by the government as a precursor to the introduction in April 2023 of a Health & Social Care Levy (HSCL) which will aim to raise additional funds for the NHS in the wake of the pandemic. Once HSCL is introduced, it will replace the national insurance increase and both charges will be shown on payslips. Increases have been applied to both employers and employees, with employers paying 15.05%, up from 13.8% and employees paying either 13.25% or 3.25%, depending on their income, up from 12% and 2% respectively.
How are national insurance contributions decided?
National insurance rates are dependent on different “classes” and bands. Classes denote how you are paid (e.g. employee or self-employed) and the bands are the income levels ranges you fall into. As part of the current changes, in July 2022, the primary threshold for Class 1 (annual salary level after which national insurance must be paid) will be increasing from £9,880 to £12,570.
I am a fully employed, permanent employee, how much will I have to pay?
If you are employed directly by your employer in a permanent role on PAYE you will pay an increase in national insurance contributions dependent on your salary level. This will be deducted at source as it is now, and for most people will be an additional 1.25%on everything above the primary threshold.
I am a contractor, how much will I have to pay?
How much you will pay as a contractor will depend on how you are paid. If you are PAYE through an agency, then your increase will be taken at source and shown on your payslip. As with all PAYE employees, next year, the national insurance rate will go back down, and the additional HSCL will be taken as well.
If you are paid via an umbrella company, then your umbrella provider will make the necessary calculations for you. You will need to speak with them to find out how much your contributions will increase by.
I am “Outside IR35” and pay myself through a limited company, will this affect me?
If you pay yourself dividends from a limited company you are fully liable for calculating and paying the increase yourself. The tax rates of dividends has increased by 1.25% (to 8.75%, 33.75% and 39.35%) and we recommend you seek independent financial advice if you have any concerns or queries.