NIC changes from 6 November 2022

The initial introduction of the 1.25% increase in both employers’ and employees’ NIC on 6 April was followed by the increase to the employees’ primary threshold, to bring it in line with the income tax personal allowance (£12,570) on 6 July. These were designed by the previous government as a pre-curser to the introduction of the Health and Social Care Levy (HSCL) from April 2023.

The government from September 2022, heralded a reversal of the rate increase and repeal of the HSCL: the immediate changes take effect from 6 November 2022.

What is changing from 6 November?

Where NIC is calculated on a weekly/month period basis both employers and employees will pay less NIC on all earnings from 6 November onwards as set out in the table below: note that the increase in the primary threshold for employees that took effect in July has not been reversed so most employees will actually be better off that they were in March 2022. However, the position is not so straightforward for ‘statutory directors’:

Statutory directors (broadly those recorded as directors of a company at Companies House, e.g., NEDs and the Board) have NIC calculated on an ‘annual earnings period’ for both the director’s and the employer’s contributions. The legislation to deal with the changes seeks to average their rates of NIC for the whole of 2022/23: it includes new NIC rates of 12.73% and 2.73% for payments to statutory directors for the whole of 2022/23 and 14.53% for employers. However, it is not yet clear how the July change in the primary threshold is to be addressed for statutory directors.

This will have some interesting consequences. Statutory directors who are paid just once a year in the April to November period are likely to have overpaid NIC for the year (and for employer’s NIC). Similarly, statutory directors who received large bonuses in the first half of the tax year may well have overpaid. How, such payments are to be adjusted for has yet to be explained by HMRC.

Class 1A and 1B NIC

Employers also pay Class 1A NIC on any benefits in kind provided, which covers the complete tax year and is remitted by July following the tax year. For the 2022/23 tax year only a new NIC rate of 14.53% is being introduced to again accommodate for the change. This new rate will also apply to any Class 1B NICs that apply to PAYE Settlement Agreements.

NIC deferment calculations

For those individuals who need to consider whether they may have exceeded the annual maximum NIC threshold (i.e., those with more than one job and can claim ‘deferment’) new NIC rates of 12.73% for employees and 9.73%/2.73% for the self-employed will need to be used in the calculations as appropriate.

What should employers do?

For those employers who do not use a payroll provider, switching to new rates for employees and employers NIC should be relatively easy to accomplish through their payroll software. Businesses considering paying discretionary bonuses in October pay might also consider deferring these until the post 6 November payroll to be more cost-efficient for both employer and employees (although this will make no difference to statutory directors).

It has always been appropriate to identify statutory directors in regular payrolls, so checking that recently appointed directors and NEDs are recorded correctly will clearly be vital from 6 November onwards as will ensuring an end of year reconciliation of the NIC they have paid and the employer contributions.

We expect that HM Treasury will issue further regulations to clarify a number of issues and these may not be in place by 6 November so employers and payroll providers may be operating in uncertainty for some months yet and should keep an eye open for formal guidance from HMRC. 

Shared from BDO