The impact of the new National Insurance changes

By Horsfield & Smith Chartered Accountants

30 Sep 2021

g042_changes-to-nic-contributions_2092021.jpg

Increases to National Insurance Contributions (NICs) are on the way. But do you know the full implications for you and your business? We’ve got the lowdown.

You’ll no doubt have seen the news of a rise in both employees’ and employers’ National Insurance contributions (NICs). It’s been a contentious move by the Government, with some people seeing the policy as a necessary way of generating extra revenue for the NHS and social care, and others questioning if a tax on workers is a positive step at this stage.

However, this increase in NICs is coming and will take effect from April 2022 – and it’s going to have a meaningful impact for you and your workforce. We’ve highlighted the main changes so you can be prepared and ready for the increase.

What do the National Insurance Contribution Changes Mean?

As part of the Health & Social Care plan announced on 7 September 2021, National Insurance rates are scheduled to be increased by 125 basis points from April 2022. The additional element will be split out into a stand-alone ‘Health and Social Care Levy’ from April 2023.

The thresholds that apply are those currently in usage, but any additional changes would be announced in the Autumn Budget that’s due on 27 October 2021.

How Will Individuals be Affected?

Let’s start by looking at the impact for individuals, and how the NIC changes will affect salaries, dividends and those in self-employment:

Salaries – for employees with annual earnings between £9,568 and £50,270 the National Insurance rate increases from 12% to 13.25%, an increase of 10.4% above current levels. On earnings over £50,270 the rate is over half as much again, changing from 2% to 3.25%. For example: Salary £30,000 p.a. NIC goes from £2,452 to £2,707 Salary £60,000 p.a. NIC goes from £5,079 to £5,709 Salary £100,000 p.a. NIC goes from £5,879 to £7,009 Retirement age workers – people still in employment after the state retirement age will be subject to the 1.25% charge for earnings above the primary threshold (currently £797 per month) from April 2023, where the extra charge is split out into a separate Health and Social Care Levy. Dividends – if you receive dividends from a company, the NI changes will affect this. For dividends taxed in the basic rate band, the rate increases from 7.5% to 8.75%. In the higher rate band it changes from 32.5% to 33.75%. And in the top (additional rate) band, the charge increases from 38.1% to 39.35%. Self-employed – if you’re self-employed, your Class 4 NICs will increase from a rate of 9% to a rate of 10.25%. That’s an additional charge of 13.9%, with the higher rate charged on income in excess of £50,270 increasing from 2% to 3.25%, which works out as an effective hike of 62.5%. Self-employed with employees – where you’re self-employed and have employees working in your business, you’ll also be subject to the same additional costs as any other employers – see below.

How Will Companies be Affected?

There are multiple impacts of the NIC increase for individuals. But you’ll also be affected if you’re an employer:

Employers – if you’re an employer with workers on the payroll, the employer rate of NI increases from 13.8% to 15.05% for all income per employee above £8,840 per annum – so this becomes an effective increase of over 9%. Employer’s allowance – the employer’s allowance, which for many businesses will cover the first £4,000 of some company National Insurance costs, is still available. The allowance will be extended to cover the new Health and Social Care Levy when that becomes a separate item. Fringe benefits – the Class 1A rate which employers pay on many fringe benefits, such as company cars and (ironically) private medical insurance, increases from 13.8% to 15.05%. Where PAYE settlement agreements are in place, the Class 1B rates increase in the same way. Directors loans – if you have any overdrawn directors’ and shareholders’ loans which give rise to a Section 455 charge, the rate at which that is levied will change from 32.5% to 33.75%.

How Will the Changes Impact Your Business Planning?

If you’re a limited company, your National Insurance bill will increase by about 9% over current levels, presuming that everything else stays the same.

For most unincorporated businesses, the main impact will come from the change in your Class 4 National Insurance. Contributions will increase by a minimum of 13.9%, with the higher rate charged on income in excess of £50,270 increasing from 2% to 3.25% – that’s an effective hike of 62.5%, which will need to be factored into your financial planning and budgeting.

Talk to us about planning for the NIC changes on 0161 761 5231 or email theteam@horsfield-smith.co.uk.

Latest news

1

Trident return to power Net Zero Carbon Conference 2025 Net Zero Conference

Trident return to power Net Zero Carbon Conference 2025

08 Apr 2025

2

50 jobs to be created as Group55 announces further growth and expansion Stephen Turner Group 55

50 jobs to be created as Group55 announces further growth and expansion

08 Apr 2025

3

New chapter opens for Sundown after strategic sale Heath Groves

New chapter opens for Sundown after strategic sale

08 Apr 2025

4

Pets Choice acquires Pettex and cat litter division Tony Raeburn at Pets Choice

Pets Choice acquires Pettex and cat litter division

07 Apr 2025

5

PWA Planning opens new office to support local and national growth Dan Hughes, Lauren Taylor, Paul Walton, Michael Coburn and Andrew Corrin

PWA Planning opens new office to support local and national growth

07 Apr 2025

Pc Prestonmacan Gif980x120 March
Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
Lancashire Net Zero Carbon Conference
Net Zero Carbon Social 1200px
Networking
18 Jun 2025

Lancashire Net Zero Carbon Conference

Crow Wood Hotel & Spa Resort, Burnley, BB12 0RT

08:30 - 13:00

CMI Level 5 Management and Leadership Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Management and Leadership Course

Preston Campus, Preston , PR1 2HE

09:00 - 17:00

CMI Level 5 Project Management Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Project Management Course

Preston Campus, Preston, PR1 2HE

08:00 - 17:00

RISE - The Academy for Female Leaders and Managers
WENDY BOWERS RISE Illustrstion copy.jpg.jpg
LBV Hub Seminars
02 Apr 2025 - 08 Oct 2025

RISE - The Academy for Female Leaders and Managers

East Lancashire Chamber of Commerce, Clayton le Moors, BB5 5JR

09:00 - 15:30

The Business Network Central & East Lancashire
LBV Hub Networking
24 Apr 2025 - 24 Apr 2025

The Business Network Central & East Lancashire

Stanley House, Blackburn, BB2 7NP

11:30 - 14:15

People Power: Exclusive Event Series
Stay ahead in 2025.jpg.jpg
LBV Hub Seminars
29 Apr 2025 - 29 Apr 2025

People Power: Exclusive Event Series

People's History Museum, Manchester, M3 3ER

17:00 - 21:00

Planning for the future + navigating Inheritance Tax changes
Planning for the future + navigating Inheritance Tax changes for website.png.png
LBV Hub Seminars
01 May 2025 - 01 May 2025

Planning for the future + navigating Inheritance Tax changes

Stanley House Hotel, Mellor, Blackburn, BB2 7NP, Blackburn, BB2 7NP

08:00 - 10:30

A night at the races
1.png.png
LBV Hub Dinners / Balls
02 May 2025 - 02 May 2025

A night at the races

Morecambe FC, Morecambe, LA4 4TB

19:00 - 23:59

Innovating business solutions through PhD Partnerships
30478 Skills Bootcamp open day setting.jpg.jpg
LBV Hub Networking
07 May 2025 - 07 May 2025

Innovating business solutions through PhD Partnerships

University of Central Lancashire, Preston , PR1 2HE

14:30 - 15:30

Celebrating 50 years of KTP
UCLanAerialCampus.jpg.jpg
LBV Hub Networking
07 May 2025 - 07 May 2025

Celebrating 50 years of KTP

University of Central Lancashire , Preston, PR1 2HE

16:00 - 18:00

Research and Knowledge Exchange Showcase
13421_research_knowledge_exchange_2025_600x300.jpg.jpg
LBV Hub Awards
07 May 2025 - 08 May 2025

Research and Knowledge Exchange Showcase

University of Central Lancashire , Preston, PR1 2HE

09:00 - 17:00

Business Support Showcase: Collaborate, Innovate, Grow
Student Centre Autumn 2022.jpg.jpg
LBV Hub Networking
08 May 2025 - 08 May 2025

Business Support Showcase: Collaborate, Innovate, Grow

University of Central Lancashire, Preston , PR1 2HE

11:00 - 13:00

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more Lbv121 Online Graphic
Subscribe now

Weekly news bulletin