The payroll team was definitely the place to be to listen to the spring statement….within minutes the spreadsheets were open to look at the impact of the national insurance announcements.
The main announcement of the day for most people, were the changes to national insurance. We were all acutely aware of the social care levy due to come in to play – there were some calls for this to be delayed due to the pressure that this, and other increases in cost of living, were going to cause – the announcement was therefore a pleasant surprise.
The annual level at which employees and the self-employed start to pay NICs was due to increase from £9,568 to £9,880 from 6 April 2022.
This increase will go ahead but be further uplifted to £12,570 from 6 July 2022, effectively aligning the point at which an individual starts to pay NICs with the £12,570 income tax personal allowance.
In the tax year to 5 April 2023, this is a NIC cut worth £267 for most employees and £207 for most self-employed individuals.
These measures will negate the social care levy for most workers with employment earnings of less than £34,000, providing them with a small contribution to the increased cost of living.
The starting NIC threshold for the self-employed and company directors is computed on an annual basis and so will be set at a pro-rata sum of £11,908 for the whole of the tax year to 5 April 2023, before increasing to £12,570 in the tax year to 5 April 2024.
For the self-employed, some individuals will find that they no longer need to pay Class 2 NICs from April 2022. The small profits threshold will be set at £6,725 as planned but the requirement to pay Class 2 NIC will only apply to those with self-employed profits over £11,908.
This will benefit approximately 500,000 self-employed individuals by saving them £165 a year.
From 6 April 2023, Class 2 NIC will only be payable by those with profits over £12,570.
No changes were announced for employers in relation to national insurance although there will be an increase in the Employment Allowance in the year to 5th April 2023 to £5,000.
In terms of personal tax, a reduction from 20% to 19% has been noted from 6th April 2024 which is expected to again save a considerable number of workers on their tax bill in that year.
All in all, for individuals, there was probably a small sigh of relief rather than a celebration – it isn’t going to mitigate all the increases coming their way but does allow at least some elements of this to be mitigated.
If you would like to discuss how the Spring Statement will impact you, please contact our team today.