Check the small print about the National Insurance changes this month
- The Low Incomes Tax Reform Group (LITRG) is reminding millions of PAYE workers about changes to National Insurance thresholds on 6 July.
- Some universal credit workers may not see as much of the increase.
- LITRG is also encouraging small employers to check their payroll systems.
The Low Incomes Tax Reform Group (LITRG) is reminding millions of PAYE1 workers that changes to National Insurance thresholds on 6 July may mean an increase to their take home pay from this month. But some universal credit workers may not see as much of the increase in their pocket, points out LITRG. It is also encouraging small employers to check that their payroll systems have been updated to reflect the new National Insurance thresholds.
From 6 April 2022, an extra 1.25 per cent is payable in National Insurance contributions across the board, resulting in less take home pay for all workers. This was announced as a temporary increase to National Insurance rates, to be replaced in April 2023 with the Health and Social Care Levy2.
In the 2022 Spring Statement, it was announced that from 6 July 2022 the threshold at which people pay National Insurance would increase to align with the personal allowance for income tax.3 Now that this has come into effect, LITRG is reminding taxpayers that most will see a difference in their pay packet for pay dates falling on or after 6 July.
Antonia Stokes, Technical Officer at LITRG, said:
“For National Insurance purposes, the 2022/23 tax year is unusual, not only because two significant changes have been brought in, but they have each come into effect at different points in the year. First, we saw an increase to the rates of National Insurance contributions payable by workers from the beginning of the tax year. Now, part way through the tax year, we see National Insurance coming back down, as the point at which workers start to pay National Insurance is being increased.
“The net effect of both changes will produce some winners and some losers overall. Generally speaking, those on higher incomes will still be paying more National Insurance than they were this time last year. Some lower earners, however, will be better off overall.4”
LITRG published a news article earlier in the year to show how the figures might look with examples.5
LITRG is also reminding universal credit claimants that changes to their net pay can have an impact on their award. For claimants whose net income is above the ‘work allowance’, an increase in their net pay can lead to a reduction to their claim for universal credit, at a rate of 55p reduction of universal credit for every £1 increase in take home pay.6 Overall, universal credit claimants should still benefit from this change.
If taxpayers need help to understand how their entitlement to benefits are affected, LITRG recommends they seek help from a welfare rights adviser.
LITRG is also calling on small employers to ensure their payroll software is updated and ready to process National Insurance for workers correctly using the new threshold.
Antonia Stokes said:
“Payroll software may update automatically to reflect these new changes, but we encourage small employers to ensure that their software is up to date for the first payroll run following the change. It is essential to ensure that employees are paid correctly and not suffering excessive deductions of National Insurance, which could be time consuming and costly to rectify.”
Notes for editors
- The changes to National Insurance also apply to the self employed, however, as the National Insurance position for the self employed is calculated at the end of the tax year, they are not affected in the same way by the mid-year change to National Insurance thresholds.
- For the 2022/23 tax year there is a 1.25 percentage point increase to Class 1, Class 1A, Class 1B and Class 4 National Insurance contributions. From April 2023, the rates of National Insurance contributions will revert to their previous level, with the Health and Social Care Levy being collected as a separate deduction from workers’ pay. The Health and Social Care Levy will be 1.25% and will be subject to the same threshold limits as for National Insurance. Further information can be found on GOV.UK.
- Changes to National Insurance thresholds are explained in this Personal Tax Factsheet.
- HMRC have published a calculator that can be used to help workers understand their National Insurance position when compared to this time last year. The calculator is basic and has certain limitations. The calculator can be accessed on GOV.UK.
- LITRG article published 4 April, Take home pay – changes to look out for in the new tax year.
- For Universal Credit, the work allowance is the amount a claimant can earn before their award is reduced. For some the work allowance is nil. Entitlement to a work allowance depends on the claimant’s circumstances and the level of work allowance will depend on whether the claimant receives housing support. More details can be found on GOV.UK.
Low Incomes Tax Reform Group
The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998, LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.