The Chancellor of the Exchequer, Rishi Sunak, laid out changes to National Insurance contributions (‘NICs’) in his Spring Statement in the House of Commons on 23rd March 2022.
In his statement, he advised:
“The annual National Insurance Primary Threshold and Lower Profits Limit, for employees and the self-employed respectively, will increase from £9,880 to £12,570 from July 2022. This increase will benefit almost 30 million people, with a typical employee saving over £330 in the year from July. Around 70% of NICs payers will pay less NICs, even after accounting for the introduction of the Health and Social Care Levy. Around 2.2 million people will be taken out of paying Class 1 and Class 4 NICs and the Health and Social Care Levy entirely, on top of the 6.1 million who already do not pay NICs.”
This change affects both the employed and the self-employed and it means that individuals’ personal allowances for National Insurance are aligned with the tax-free threshold of £12,570. National Insurance contributions will become payable on the proportion of annual salary over £12,570 only.
What does this mean in terms of savings?
The Government has announced that the increase in the threshold for NICs will put an additional £330 per year back into the pocket of the ‘typical employee.’ The tax cut, brought about by the increase in NIC threshold, is said to be worth £6 billion per year. It is also said that it is expected to benefit almost 30 million working people. 2.2 million lower-paid people in the workforce are expected to be taken out of paying National Insurance contributions all together.
This financial benefit comes in spite of the introduction of the Social Care Levy on 6th April 2022. This is an increase of 1.25% on both main and additional rates of Class 1 (paid by employees), Class 1A, Class1B (paid by employers) and Class 4 (paid by self-employed) National Insurance contributions in the 2022/23 tax year.
The introduction of the Social Care Levy comes about after the Health and Social Care Levy Act 2021. The purpose of the Act is to increase funds for the NHS and other care bodies, which the Government decided to raise through taxation rather than borrowing. This, they say, will lead to a permanent increase in spending across the organisations.
When is the National Insurance threshold being increased?
The NIC threshold is being increased to £12,570 on 6th July 2022. The Chancellor, in his statement advised:
“July is the earliest date that will allow all payroll software developers and employers to update their systems and implement changes.”
Says Simon Bocca, founder and CEO of PayCaptain, “This is a frustrating comment from the Chancellor of the Exchequer. At PayCaptain, we can be extremely responsive when it comes to making and testing changes to our cloud-based payroll solution. This change to our solution has already been made and tested, the announcement was only made just over a week ago! The fact is that employees are losing out on the chance of benefitting from the threshold increase for another three months – and they need this extra money in their pockets now.
Payroll companies and software solutions providers need to make and test changes to their systems like they do when there are income tax rate changes. It’s something we have the capability to do within days, if not hours. I know that the industry feels frustrated that we are being ‘blamed’ for the delay in this change being implemented.”
Val Ellis, Payroll Manager at PayCaptain, believes the Government may have given a longer lead-time for these changes to be implemented because of the backlash they received when changes were made at short notice during the height of the pandemic - but this is very different and these changes could have been implemented much quicker. It is true that it's much harder and slower to implement changes in legacy payroll companies, but modern and agile software companies, like PayCaptain, can be much more responsive and it’s easier to make the required changes. “It’s important for us to be both reactive and responsive,” she says, “and with our platform it’s possible for us to make changes like these overnight. We’ve already got the NIC changes developed, tested and signed off and we’re ready to go for 6th July when the new changes come into effect.”
How does PayCaptain help?
Firstly, since the announcement of the increase to the NIC threshold on 23rd March, PayCaptain has already amended and tested the change. The changes will be implemented at the beginning of July so that employees start to benefit from the tax cut.
But what more can PayCaptain do to help those struggling with money or those from low-income families? PayCaptain is a payroll solution that has functionality built into the payroll app used by employees, to help their financial well-being and let them take control of their pay. Features built into the app include:
- Payment splitting – employees can make payments direct from their net pay – for things like mortgages, rent, credit cards or bills, which eliminates the risk of them missing an important payment.
- Emergency cash through On Demand pay – this is the option for employees to access funds from their accrued wages to deal with an emergency if it arises. This prevents employees having to access funding through payday loans or expensive cash withdrawals on their credit cards.
- Savings – pre-planned or ad hoc savings can be boosted by payments direct from the PayCaptain app. If users don’t have existing savings accounts, one can be opened through the app
- Access to expert financial advice and debt management in partnership with the national charity MoneyHelper is available through the app. This helps employees who are struggling with financial stress access expert advice and support to help them avoid the problem spiralling further.
- Multi-language mobile phone app and interactive payslips – helping non-nationals or those with English as a second or subsequent language fully understand their payslips and the benefits on offer to them.
In summary, PayCaptain is ‘ready to go’ with the change to the threshold for National Insurance contributions.The PayCaptain solution has been tested to ensure the change is seamless and that employees can benefit from the tax cut when it is implemented to the Government’s timeframe.
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