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Leigh Thurston, of accountants Lovewell Blake, looks at the plethora of changes to National Insurance





Employers, and particularly those SMEs which are too small to have a dedicated HR and payroll function, will be tearing their hair out at the constant chopping and changing as the Chancellor tries to implement the new Health and Social Care Levy while at the same time being seen to be supporting those struggling with the cost of living crisis.

The result has been that what should have been a relatively simple change is causing headaches for employers trying to cope with the ever-shifting sands of payroll deductions.

Essentially, there was a 1.25% increase in both employees’ and employers’ national insurance from April 6, a rise announced in last autumn’s budget with the aim of funding Covid recovery in the NHS, and subsequently improvements to adult social care.

Leigh Thurston, of Lovewell Blake
Leigh Thurston, of Lovewell Blake

Next April the employee’s element of this disappears from national insurance, to be replaced with a new deduction called the Health and Social Care Levy (although the net effect for employees will be exactly the same).

Business owner-managers can’t escape the new tax, as the NI increase is accompanied by an across-the-board 1.25% increase in dividend tax rates.

So far, so good. But in response to political pressure around the cost of living, Chancellor Rishi Sunak decided to make a further change in his spring statement, when he announced that he would be aligning the thresholds at which individuals pay national insurance with the income tax thresholds – meaning that instead of starting to pay NI after the first £9,880, individuals will start to pay NI after the first £12,570.

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The problem is that the announcement came too late to be introduced at the start of the tax year, so the new threshold comes into effect on July 6. So we have the situation where there are two different NI thresholds in the same tax year.

To add to the complexity, people above the state pension age – who currently pay no national insurance – will from next year have to pay the Health and Social Care Levy on any earned income, although not on pension income. It will be their employers who will be responsible for calculating what is due, and for collecting it under the PAYE system.

Confused? You are not alone; many small employers spend a disproportionate amount of time trying to get their heads around this kind of thing. It is why an increasing number of small businesses are outsourcing their payrolls, leaving them with the time and the headspace to do more important things like developing new products and finding new customers.

As the HMRC ads used to say, ‘tax doesn’t have to be taxing’ – but all too often political manoeuvring means it is.

-- Leigh Thurston is a partner based at Lovewell Blake’s Bury St Edmunds office