What employers need to know about National Insurance rising and the health and social care levy

Being an employer is about to become more expensive. From April 2022, National Insurance (NI) will increase. However, this will only last for one year. From April 2023, NI will return to its current percentage (unless something changes in the interim) and the increase (representing the top 1.25% of NI) will be replaced by a Health and Social Care Levy. You are obligated to make these payments… but starting to prepare now, and making sure you are ahead of the game when it comes to figuring out the best way to comply with the new legislation, could help keep costs down.

One way you will be able to avoid paying more than you need to is to make use of the existing NI employer reliefs, which will continue to apply when the NI increase and HSC Levy are introduced. At present, employers pay zero-rate NI for employees that are: under the age of 21; under the age of 25, if apprentices; or ex-forces personnel in their first civilian role for up to 12 months. Additionally, from April 2022, a zero-rate of secondary Class 1 NIC will be available to employers on all employees who work a minimum of 60% at a Freeport tax site. This zero-rate will apply to a new secondary threshold, which is expected to be £25,000 per annum.

Another opportunity to save money is to make the most of your employment allowance. If your employer NI liability is less-than £100,000, then the £4,000 employment allowance can be used against the new levy, as well as NI liabilities for the tax year starting April 2022.

Salary sacrifice might be a third route to minimising the amount employers need to pay, as it could become an even more tax efficient way to make pension contributions. This is because it reduces the salary on which employee and employer NI contributions are paid. It is not clear, however, whether salary sacrifice will have a similar effect on the HSC Levy.

Employers should also be aware that there might be a number of ways they could end up paying more than expected when the new rules come in. For example, a number of employee benefits, such as company cars or medical schemes, could result in a significant increase in NI liability. Additionally, some off-payroll workers may have to be deemed employees for the purposes of calculating NI under the new system.

If you need help understanding or implementing any of the above factors, we urge you to contact us on 0121 456 0190. Our professional team of experts can help you prepare for these changes, ensuring you do not pay more than you need to when they come into force next year.