Small businesses will be paying an extra £3,000 on average in staff National Insurance contributions from today.
The average employer should expect to see their monthly National Insurance bills increase by roughly 10 per cent, as a result of the changes.
Combined with the increase in minimum and living wage coming into force this week, small businesses are to set to pay an extra £5,000 on average in outgoings, according to research by small business insurance provider Superscript.
This is on top of the extra £10,000 that the Federation of Small Business calculates they will be paying on energy costs this year.
Employees meanwhile will be hit with a 1.25 percentage point rise in National Insurance from today. For some workers, this will be equivalent to a 10 per cent jump in their own tax bill from 10 per cent to 12.5 per cent.
However, the threshold at which workers start paying National Insurance contributions will increase to £12,570 in July, bringing it in line with when people start to pay income tax.
Nearly two thirds (63 per cent) of 1,500 businesses surveyed said the increase in employment allowance announced in the Spring Statement to help with the National Insurance rise will either have a negligible or no discernable impact.
And almost one in five (19 per cent) of small businesses are giving employees a pay rise to mitigate the impact of the National Insurance hike.
How much extra is National Insurance going up?
The 1.25 per cent percentage point increase on both employer and employee National Insurance contributions will lift the overall tax on employment from 22.7 per cent to 24.6 per cent.
About two-fifths of all NICs are paid by employers, with the rest borne by staff.
The amount staff pay depends on whether they are an employee or not and how much they earn.
National Insurance rates are split between different classes and bands.
Employees pay “class 1” contributions. As of now, the tax kicks in on earnings in excess of £190 a week at a rate of 13.25 per cent and then at 3.25 per cent on all other earnings above £967 a week.
Employers used to pay 13.8 per cent but this has now risen to 15.05 per cent.
The self-employed pay slightly lower rates of either “class 2” or “class 4” contributions, depending on how much they earn. Class 2 contributions are set at a flat-rate of £3.15 a week in 2022-23. Class 4 contributions are due if you are self-employed and make profits of £9,880 or more in 2022-23. If you’re over this threshold, you’ll pay 9 per cent on profits between £9,800 and £50,270 in 2022-23.
Social care levy
From the 2023/24 tax year, a separate tax known as the levy, is due to be introduced, with National Insurance rates reverting back to their March 2021 levels. This new levy will appear separately on payslips and will apply to both the employer and employee at a rate of 1.25 per cent for each, resulting in a combined levy rate of 2.5 per cent.
How to help your staff avoid National Insurance hike
One way you can help your staff avoid the National Insurance hike is to offer them a “salary sacrifice” pension scheme or paying for workplace benefits, such as season ticket loans, cycle-to-work schemes or help buying ultra-low emission vehicles.
You agree with your staff member to cut their salary, paying the equivalent sum into a pension, or use the money to pay for workplace benefits. This will reduce an National Insurance bill, because the salary sacrificed is not liable to income tax or National Insurance.