In his Spring Statement, Chancellor Rishi Sunak announced that the government will go head with its decision to use National Insurance Contributions (NICs) as a tax to help raise £36bn for the ‘Health and Social Care Levy’, which will fund the costs of the NHS and health and social care.
How Much Have National Insurance Contributions Increased?
This meant that National Insurance was increased by 1.25 percentage points on 6 April 2022, despite the current cost of living crisis, energy cost crisis and projected increases in inflation to above 10% in the next three months.
The increase could mean that someone earning £27,000 a year who would have been paying around £2,053 in annual National Insurance costs will now pay over £200 more on top of that.This amounts to an £11bn increase in national insurance contributions across the whole economy.
However, in an attempt to protect those struggling the most during the crisis from the National Insurance increase, it was also announced that the annual National Insurance Primary Threshold and Lower Profits Limit would increase from £9,880 to £12,570, aligning it with the income tax personal allowance from July.
The government estimates that from July, the typical employee will save over £330 and that around 70% of NICs payers will pay less.
However, if you earn £50,000 annual pay, last year your National Insurance contributions would have been £404.
From the 6th April to the 6th July when the rate increases, your contributions would increase to £443.
When the Primary Threshold and Lower Profit Limit increases on 6th July, your contributions would decrease to £413.
What Effects Will This Have on Businesses in the Long Term?
Employers may need to start thinking about ways in which they can cut back on other spending in order to fund the change. They may also start to notice difficulties in recruitment and retention.
SMEs should reevaluate their remuneration packages and look for ways to reduce the effects of the cost increases, even if the changes only negatively impact your employees for two months.
One of the most important ways in which you can prepare for the change is by ensuring you have a strong understanding of your current financial position and what the increased costs for your business will be.
If the costs are significantly higher, you may want to think about passing costs onto your customers or clients by increasing your prices. It’s also worth looking at what your suppliers are doing as they may be hiking their prices up too and passing the costs onto you.
Expert Help with Your Taxes
For more advice on how you can save money despite the increase in National Insurance costs, get in touch with our team at Ryans today to discuss our Corporate Tax Planning services.
With the assistance of our team of expert chartered accountants, you can get a greater understanding of what the changes will mean for you and what steps your business can take to ensure you aren’t affected negatively.