The Government recently announced changes to National insurance contributions (NIC) and dividend tax rates which will increase by 1.25 percentage points across the UK from April 2022, with the projected £12bn annual income to be ringfenced to pay for health and social care.
Following this, the BBC confirmed that there has been criticism – including from within the Conservative Party – that it will be unfair on younger people and the lower paid.
What are the new plans?
Employees, employers and the self-employed will all pay 1.25p more in the pound for National Insurance (NI) from April 2022.
- Employees pay NI on their wages
- Employers also pay extra NI contributions for staff
- The self-employed pay NI on their profits
But from April 2023, National Insurance will return to its current rate, and the extra tax will be collected as a new Health and Social Care Levy.
This levy – unlike National Insurance – will also be paid by state pensioners who are still working.
What considerations do businesses need to take into account, following this announcement? Breathe HR comments that following this announcement, employers will have to prepare their payroll teams for the adjustment from next April, to ensure they are meeting their legal obligations and making the correct deductions from employee wages. It may also be of benefit to send a reminder email to staff, or update them through normal business channels, so they are aware in advance that there will be a decrease in their take-home pay, due to the increase in national insurance payments.
Some employees will be understandably upset about this but there is no obligation on organisations to provide additional benefits or pay increases to cover the difference in net pay. Organisations can make their staff aware that this was not a business decision, but a necessary step mandated by the Government.
All other contractual entitlements should remain the same. Individual businesses will have to assess the financial impact this might have on their organisation and make adjustments where necessary to ensure its long-term viability. If redundancies or changes to existing terms and conditions are needed, organisations must make sure they are following fair processes and fully consulting with staff before taking any action.
Some organisations might be more inclined to hire individuals on a self-employed basis to avoid contributing towards higher NI payments. However, doing so may cause more problems if it is seen that there is an employment relationship in place and the individual is working under the wrong employment status. This could not only lead to a breach of employment laws and tribunal claims but also costly back-payments to the employee and HMRC.
Further changes are expected from April 2023, including recording the increased national insurance rate on employee payslips as a separate “levy” deduction and making this deduction from working pensioners’ wages. Organisations should use this time to prepare themselves for the upcoming changes, so they don’t get caught out
If you wish to discuss this or any other area of Human Resources for your team and business, do not hesitate to contact us.