The Prime Minister has recently announced an increase in National Insurance Contributions (NICs) to help raise £12 billion to fund the UK’s social care and NHS. The controversial measures were voted through by MPs by 319 to 248 and will come into effect from April 2022.
The changes involve a 1.25 per cent increase in Class 1 and Class 4 NICs. On earnings of over £8,840, Class 1 Employers’ NICs will rise from 13.8 per cent to 15.05 per cent, while Class 1 Employees’ NICs will increase from 12 per cent to 13.25 per cent.
Standard rate Class 4 NICs, meanwhile, will rise from 9 per cent to 10.25 per cent for earnings exceeding £9,568, while higher rate Class 4 NICs will increase to 3.25 per cent from 2 per cent.
When the rules come in next year, these changes will initially appear on payslips as higher NICs. But, from April 2023, they will be listed as a separate tax – the Health and Social Care Levy.
Among those set to be most affected by the changes are employees working through umbrella companies. Umbrella company workers pay both Employers’ NICs and Employees’ NICs, meaning that their total NICs will increase by 2.5 per cent from next April, impacting their take-home pay.
One way that umbrella company employees may be able to lessen the impact of this is by trying to negotiate an increase to their assignment rate with either their end client or recruitment agency.
However, it is important to be note that there is no way to avoid paying the higher rate of NICs and workers should be aware that all compliant umbrella companies will follow the new rules.
Author: Steven English