NIC update – lovely surprise!
Today the Chancellor announced some serious cuts to employee’s national insurance. The rate increase of 1.25% remains in place and starts on 6 April BUT he has increased the threshold at which NI starts to be paid. Many employees are under the mistaken assumption that as the personal allowance for tax is £12,570 then this must also be true for NI. This has not been correct. In 2021-22 NI at 12% was paid on all earnings over £9,568. From July 2022 the personal allowance and NI threshold will be aligned at £12,570.
We are in favour of this, it has always seemed inequitable that the lowest paid started to pay “tax” in the form of NI at such a low level of income. This is a great step forward in helping the lower paid and making work pay. It also benefits higher paid employees.
For our contractor clients we will be making mid-year changes to salary levels once the details of the increase and how this will be applied to directors are known.
The statement was silent on the self-employed but the class 4 threshold for the self-employed has always been aligned to the employee’s threshold so we expect this to increase to £12,570 in the summer.
For employer’s the 1.25% increase in NI will commence on 6 April 2022 as planned bringing the rate to 15.05%. There is some further help for small employers as the employer’s allowance has been increased to £5,000. Please note this is not available to one-man director Limited companies.
Help to grow
just a reminder that the government has a couple of schemes to help small business:
(i) help to grow digital – provides funding towards digital upgrades to a maximum of £5,000; and
(ii) help to grow management – provides funding towards management training
Final thought
During his speech the Chancellor stated that the government had been at the forefront of simplifying the tax system – by 2015 the tax code was 17,000 pages long (up from 11,520 in 2009) and more has been added since. If this is simplification heaven knows what complication would look like!
If you have any questions then please contact Clearways Accountants