Tax and contracting News
24 - 09 - 2021
The UK Government has announced that National Insurance (NI) rates on earnings will be increased on 06 April 2022.
What are the funds raised being used for?
The additional taxation raised is intended to be used to fund the NHS and social care across the UK.
Who does this affect?
The new National Insurance increase will apply to:
- Class 1 NI paid by employees
- Secondary Class 1, 1A and 1B NI paid by employers
- Class 4 NI paid by the self-employed
Class 1 National Insurance is paid by employees and employers based on salary.
Class 4 National Insurance is paid by the self-employed based on profit.
Will this affect me immediately?
No. The increase will be effective from 06 April 2022. Each year the UK Government considers the rates and thresholds for both Income Tax and National Insurance to be applied at the beginning of a new tax year. Since the 2011/2012 tax year whilst the National Insurance thresholds have increased the National Insurance rates have remained constant.
What are the Class 1 Employee / Employer National Insurance Rates?
The Class 1 National Insurance rate is dependent on the earnings of the employee including directors. Please note NI is calculated on a payment by payment basis depending on whether the employee is weekly, monthly or annually pad. The only exception to this is Company Directors who are assessed on an annual basis. If you want further information regarding the annual basis for Directors please request our Directors National Insurance Advice Note.
The Current 2021/2022 tax year Class 1 NI earnings thresholds are as follows:
|
Threshold |
Threshold Value Per Annum
|
|
Lower Earnings Limit (LEL) |
£6,240 |
|
Primary Threshold (PT) |
£9,568 |
|
Secondary Threshold (ST) |
£8,840 |
|
Upper Earnings Limit (UEL) |
£50,270 |
The Current 2021/2022 tax year Class 1 NI rates are:
|
Threshold |
Employee |
Employer |
|
Between LEL and PT |
0% |
n/a |
|
Between PT and UEL |
12% |
n/a |
|
Above UEL |
2% |
n/a |
|
Above ST |
n/a |
13.8% |
No announcement has been made with regard to the Class 1 NI Thresholds with for the 2022/2023 tax year. However the new Class NI rates announced will be as noted below.
2022/2023 tax year Class 1 NI Rates are:
|
Threshold |
Employee |
Employer |
|
Between LEL and PT |
0% |
n/a |
|
Between PT and UEL |
13.25% |
n/a |
|
Above UEL |
3.25% |
n/a |
|
Above ST |
n/a |
15.05% |
What are the Current Class 4 Self-Employed National Insurance Rates?
The Class 4 NI is dependent on the self-employment profit above a certain threshold. Unlike the Class 1 Thresholds the Class 4 thresholds have altered each tax year:
The tax year Class 4 NI profit thresholds are as follows:
|
Threshold |
2021/2022 NI Rate |
2022/2023 NI Rate |
|
Profits between £9,569 and £50,270 |
9% |
10.25% |
|
Profits greater than £50,270 |
2% |
3.25% |
No announcement has been made with regard to the Class 4 NI Thresholds with for the 2022/2023 tax year.
If I am over State Pension Retirement age will I be affected?
No.
The 2022/23 increase will not affect you if you are over State Pension age. Your employer, however, will be affected.
Is this increase going to affect tax years after 2022/2023?
The increase in National Insurance introduced in 2022/2023 is intended to become a new tax in 2023/2024 to be called a “Health & Social Care Levy”. The Levy will be distinct from National Insurance which will revert to the lower rates from April 2023. Revenue from the Levy will be ‘ringfenced’ for health and social care.
The levy will be paid by all employees and employers and is expected to be shown as a separate item on the payslip. The Levy will also be applied to anyone working over State Pension age.
Please be aware that the advice and proposals regarding tax changes in the current economic climate are constantly changing and before acting on any of the above you should check the current situation with:
If you would like to discuss any of the issues noted above please contact us on:
01244 625 500 or 01978 364 000
contactus@foremansllp.com
Whilst all due care and attention has been taken in the preparation of these notes no liability
can be accepted for any omission or item contained therein.
Foremans LLP
September 2021
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UMBRELLA COMPANY
AGENCY INFORMATION
Assumptions
General
- The user is over 21 and subject to tax in the UK
- The user wishes to minimise their tax liability
- The user is subject to national insurance i.e.he/she is not over retirement age
- Only current tax rates and limits are applied
- No tax mitigation payments are made e.g. pension contributions
- Only 3 digit letter 'L' tax codes shown in the drop down list can be entered
- The user does not have a turnover greater than £100,000 where fewer reliefs and or higher taxes may apply
Expenses
- All miles claimed as expenses are for business use using a personally owned car or van
- All other expenses claimed are wholly, necessarily and where appropriate exclusively for the benefit of the business
Foremans LLP Charges
- Foremans fees associated with Limited Company, Sole Trader or Umbrella are as per published rates
- Foremans current Service Costs are allowed for in all calculations.
Holiday Pay
- Holiday pay is accumulated week by week by Umbrella or Agency employer but paid out during the year
VAT
- Limited Company or Sole Trader will be VAT registered
- Limited Company or Sole Trader will take advantage of Flat rate VAT
- Flat rate applied includes the benefit of the additional 1% applicable to the first year of VAT registration
Limited Company Conditions
- One director / one shareholder in a Personal Service Company
- Director of Personal Service Company elects to vote for 100% dividend after salary, costs and expenses
- Director's salary is maximum salary to the primary threshold for NI
- The Limited Company is trading normally i.e it is not subject to IR35 and is not a Managed Service Company
NOTES
- The Current tax rates are taken from the Fixed Data Table
- The current Value Added Tax Rate is 20% and is applied to all invoices and expenses as appropriate
- The Director's Salary is fixed in relation to National Insurance thresholds. Higher Rate Taxpayers should consider the advantages and disadvantages of a larger annual salary or bonus
- Higher Rate Taxpayers may wish to consider the advantages and disadvantages of shared ownership of their business
- Users with a tax code other than three digits and letter "L" may telephone or email our Development Department to request a detailed calculation
- Generally the use of an Umbrella rather than an Agency payroll is only efficient if sufficient weekly expenses are allowable and claimed
- The expenses claimed under an Umbrella should not prevent the proper operation of National Minimum Wage
Dave Wilde, Foremans (UK) Limited
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