Although the National Insurance rates and thresholds for 2022/23 had already been set, at the time of the Spring Statement in March 2022, the Chancellor announced increases in the primary threshold which would align the starting point for National Insurance with the personal allowance from 6 July 2022.
However, as the increase does not take effect until part way through the 2022/23 tax year, the two not fully aligned until 2023/24. The lower profit limit for Class 4 contributions was also increased.
Employees
Employees pay primary Class 1 National Insurance contributions on their earnings to the extent that these exceed the primary threshold. For 2022/23, contributions are payable at the main rate of 13.25% on earnings between the primary threshold and the upper earnings limit, and at the additional rate of 3.25% on earnings in excess of the upper earnings limit.
Employees are treated as having paid contributions at a notional zero rate on earnings between the lower earnings limit and the primary threshold. This has the effect of ensuring that the year is a qualifying year for state pension purpose if the employee has earnings at least equal to 52 times the weekly lower earnings limit.
The lower earnings limit is £123 per week (£533 per month; £6,396 per year) and the upper earnings limit is set at £967 per week (£4,189 per month; £50,270 per year) for 2022/23.
The primary threshold was initially set at £190 per week (£823 per month; £9,880 per year). These thresholds now only apply from 6 April 2022 to 5 July 2022. From 6 July 2022, the primary threshold is aligned with the personal allowance, and from 6 July 2022 to 5 April 2023 is set at £242 per week (£1,048 per month; £12,570 per year).
As the increase takes effect three months after the start of the 2022/23 tax year, the annual primary threshold for 2022/23 is £11,908. This will be of relevance to directors with an annual earnings period. The increase in the thresholds does not affect any liability for primary contributions for any tax week commencing before 6 July 2022.
As a result of the increase in the primary threshold, employees will pay less National Insurance from July onwards. There is no change to the secondary thresholds.
Case study
Imogen is paid £2,000 per month.
For April to June 2022 inclusive, she pays primary contributions of £155.95 per month (13.25% (£2,000 – £823)).
However, from July 2022, her monthly primary contributions fall to £126.14 (13.25% (£2,000 – £1,048)).
The increase in the primary threshold means that from July she is £29.81 better off each month.
Employment allowance
The employment allowance reduces the secondary contributions payable by the employer. The allowance is set at £5,000 for 2022/23, having been increased by £1,000 following the Spring Statement. Eligible employers should remember to claim the allowance.
The self-employed
The starting point for Class 4 contributions is aligned with the primary threshold for Class 1 purposes. To keep the alignment in light of the increase to the primary threshold from July 2022, the lower profits limit for 2022/23 has been increased from £9,880 to £11,908. The increase applies from 6 April 2022.
For help with understanding how these changes affect you, please contact us