The National Insurance threshold increase: better late than never?
Some changes in National Insurance, the Employment Allowance, and income tax will significantly impact payroll professionals – as well as 70% of households in the UK.
In the Spring Statement on 23 March 2022, Rishi Sunak announced that, among other things, workers will be able to keep more of their income before they start paying National Insurance from the beginning of July. Here’s what the changes are and why the news is so significant to payroll professionals and employees.
A quick summary of changes
The Spring Update revealed some key changes that payroll professionals need to be aware of:
- The primary threshold for National Insurance will be aligned to the tax free allowance from July 2022. This means the annual National Insurance Primary Threshold will increase from £9,880 to £12,570 from July 2022.
- Employment Allowance will increase from £4,000 to £5,000 on 06 April 2022. This provision will allow eligible employers and charities to reduce their annual National Insurance liability by up to £5,000 a year by paying less Employers’ Class 1 National Insurance.
- The basic rate of income tax will be reduced from 20% to 19% in 2024. This will reportedly be worth an average of £175 a year to 30 million people.
Why the change in the National Insurance threshold is significant
The cost of living crisis is a big concern for employees at the moment – with energy prices, National Insurance, and everyday expenditures, including fuel, increasing at an alarming rate. Because of this, in the lead-up to the Spring Statement the government has been under pressure to scrap the upcoming rise in National Insurance Contributions, a 1.25% increase from April 2022. Although this rise is still going ahead, the government seem to be trying to mitigate its effects by changing the NICs threshold instead.
By increasing the NICs threshold by £3,000, employees will be able to keep more of their income before paying NICs, which is great news for households who might be struggling. This increase will benefit almost 30 million people, with the average saving for a typical employee looking to be over £330 a year from the time it starts.
Around 70% of NICs payers will pay less overall, and around 2.2 million people will be taken out of payroll Class 1 and Class 4 NICs and the Heath and Social Care Levy entirely, on top of the 6.1 million who currently don’t pay NICs.
Mixed feelings from the payroll industry
It might be music to the ears of households that they could be saving during this challenging time. However, the payroll industry has been questioning the timing of these changes.
The statement made by the government said: “July is the earliest date that will allow payroll software developers and employers to update their systems and implement changes”. This suggests the reason the policy isn’t coming into effect immediately is because of a lack of flexibility in payroll software.
However, as payroll software developers ourselves, we know we can action these changes immediately to come into effect in time for the beginning of April. It therefore begs the question as to why there is a delay at all, especially during a time of widespread anxiety over financial stability.
Our Managing Director Anthony Vollmer stated:
“Some good news today for millions of families with the changes to National Insurance thresholds just announced by the Chancellor, but it’s a shame there is a 3 month wait for it to kick-in, especially with the NI rise still coming in from April.
“Moorepay could implement this straight away to take effect from beginning of April. Maybe we should move a bit faster Rishi? July will be a long wait for households struggling to make ends meet now, let alone in a couple of months…”
Working in an agile development environment means our experts can quickly digest the latest legislation and make updates in our software ensuring calculations reflect changes to legislation.
It’s not just these recent NI changes that have been making an impact; our developers have been updating other areas in preparation for the new tax year including the NI contributions relief for qualifying Veterans and employees in Freeports, the Health & Social care levy, changes to RTI, updates to the Construction Industry Scheme and much more.
Where to keep track of these changes?
The policy team at The Chartered Institute of Payroll Professionals (CIPP) are promising to keep payrollers up to date on their website and social channels. You can also see our Payroll Legislation Guide, which we keep updated with the latest legislation in an easy-to-digest format.