In keeping with promises made by Prime Minister Liz Truss during her leadership campaign, the Health and Social Care Levy (which was due to come into effect from April 2023) has been cancelled. The associated temporary increase of 1.25% in the rates of Class 1, Class 1A, Class 1B and Class 4 National Insurance contributions has been reversed five months earlier than planned.
The rates of primary (employee’s) and secondary (employer’s) Class 1 National Insurance contributions are reduced by 1.25% from 6 November 2022. To ensure that employees and employers benefit from the reduction, check that you have updated your payroll software by this date.
The rates of Class 1A, Class 1B and Class 4 contributions applying for 2022/23 have also been reduced.
This note outlines the changes.
Class 1 National Insurance contributions are payable by employees and employers on employee’s earnings to the extent that they exceed the relevant threshold.
Employees pay primary contributions at the main rate on earnings between the primary threshold and the upper earnings limit, and at the additional rate on any earnings in excess of the upper earnings limit. The primary threshold was increased to £242 per week (£1,048 per month) from 6 July 2022. The upper earnings limit is £967 per week (£4,189 per month) for 2022/23.
The main primary rate is reduced to 12% and the additional primary rate is reduced to 2% from 6 November 2022. From 6 April 2022 to 5 November 2022, the main primary rate is 13.25% and the additional primary rate is 3.25%.
Employers pay secondary contributions on earnings to the extent that they exceed the secondary threshold or, as appropriate, the relevant upper secondary threshold. The secondary threshold is £175 per week (£758 per month) for 2022/23. A higher secondary threshold of £967 per week (£4,189 per month) applies where the employee is under the age of 21, an apprentice under the age of 25 or an armed forces veteran in the first year of their first civilian employment since leaving the armed forces. Where the employee is a new Freeport employee, the secondary threshold is £481 per week (£2,083 per month).
The rate of secondary contributions is 13.8% from 6 November 2022. A rate of 15.05% applies from 6 April 2022 to 5 November 2022.
It is important that your payroll software remains up to date so that contributions are calculated using the rates applying at the time that the payment is made.