Changes to National Insurance announced in Spring Statement

** On 23rd September, the Government announced the reversal of planned increases in National Insurance contributions and dividend tax rates which apply to employees, directors, the self-employed and investors. Read more here.**

The Primary Threshold and Lower Profits Limit are the points at which both employees and the self-employed start paying National Insurance. 

Speculation had mounted in recent weeks that the Chancellor would row back and cancel the proposed increase in National Insurance rates, arising from the new Health and Social Care Levy. Instead, he made a surprise announcement that he would increase National Insurance thresholds, which will offset the rise in National Insurance from the social care levy for individuals on lower incomes. Higher earners will benefit from this increase but will still be exposed to increased rates of National Insurance arising from the Health and Social Care Levy. 

This was a completely unexpected announcement, made close to the start of the new tax year. Given business will struggle to implement this in April, these changes will be implemented from July 2022. This delay is intended to provide payroll software providers and employers with sufficient time to update their systems. 

What this means for employees 

• Between 6th April and 5th July 2022, employees will be able to earn £190 a week without paying Class 1 National Insurance Contributions (NICs). 
• Between 6th July 2022 and 5th April 2023, this weekly threshold will increase to £242. 
• From April 2023 onwards, employees will be able to earn £242 each week, equivalent to £12,570 a year, without paying Class 1 NICs or the Levy. 

What this means for directors 

Directors in limited companies pay NICs on an annual basis, and for the 2022-23 tax year, will be able to earn £11,908 before paying Class 1 NICs. The annual figure for directors is £11,908 and differs to employees because this accounts for 13 weeks of £9,880 and 39 weeks of £12,570. That means the benefit directors will receive in 2022-23 is in line with employees. 

What this means for the self-employed 

As with directors of limited companies, sole traders and partners in trading partnerships pay NICs on an annual basis, and for the 2022-23 tax year, will be able to earn £11,908 before paying Class 4 NICs.  

The Government also announced that for 2022-23, they plan to reduce Class 2 NICs payments for lower earning sole traders. From April 2022, sole traders will not pay Class 2 NICs on profits between the Small Profits Threshold (£6,725) and Lower Profits Limit (£11,908), but they will continue to be able to build up National Insurance credits. 

Last updated: 28th September 2022