Measure
The Chancellor has announced that both employee and employer rates of National Insurance are to be cut by 1.25 percentage points from 6 November 2022, bringing them back to their 2021/22 levels. The self-employed, who pay NICs yearly, will also get a reduction to their 2022-2023 rates that is equivalent to the 1.25% given to the employed.
The Health and Social Care Levy, which was intended to replace the National Insurance increase from 6 April 2023 has been cancelled.
This cut will apply to employees and employers on payments made on or after 6 November 2022, so in the November payroll. A monthly paid employee earning £30,000 per annum should see a drop in their monthly National Insurance contributions of about £18 between October and November 2022. Where earnings are £100,000 per annum, the monthly saving is approximately £91. Employees earning less than £12,570 per annum are not affected by the rate cut as they do not pay National Insurance. The position is slightly different for company directors due to their liabilities being calculated on an annual basis. They will have a cut of 0.52 percentage points for 2022/23, with rates reverting to their 2021/22 levels from 6 April 2022.
Employers will also benefit from a cut to their National Insurance bills, which will translate into large reductions in the cost of their workforce from November onwards. According to government figures, this will be worth £21,700 on average for medium sized employers with higher savings for large employers.
However, implementing this change at such short notice will bring challenges to payroll departments and software providers. Employers who find themselves unable to update their systems in time for the first payroll run after 6 November 2022 may have to deal with backdating the change in December or later and dealing with queries from employees. Individuals have been told they should contact their employer for refunds (if due) as a first port of call.
The rates of Classes 1A and 1B National Insurance, which are payable by employers on benefits in kind and PAYE settlement agreements, will also be cut by 0.52 percentage points from 15.05% to 14.53% in 2022/23, with the previous rate of 13.8% resuming from 6 April 2023. The intermediate rate reflects the fact that these liabilities are annual, and therefore apply across the whole tax year rather than the period from 6 November 2022 to 5 April 2023.
National insurance rates for the self-employed will be cut by 0.52 percentage points in the 2022/23 tax year rather than the full 1.25%, resulting in temporary rates of 9.73% and 2.73% instead of the expected 10.25% and 3.25%. This is to reflect the fact that, unlike employees, the self-employed benefit from the cut for the full tax year rather than the final five months. A trader with profits of £60,000 will only suffer £3,998 of Class 4 National Insurance in the 2022/23 tax year instead of the expected £4,248. The National Insurance rates for the self-employed will return to their previous levels of 9% and 2% from 6 April 2023.
The employee and employer rates of National Insurance are to be cut by 1.25 percentage points from 6 November 2022.
The reversal of the increase in National Insurance rates and cancellation of the planned Health & Social Care Levy had been widely anticipated following Prime Minister Liz Truss’s leadership campaign and so is not a surprise. The government has presented these changes as a measure of relief for workers in the context of high inflation. The Chancellor also sought to connect them with the wider growth strategy by highlighting the saving for employers and the incentive to work. The change mid-tax year will require employers to adjust their payrolls in time for 6 November, at short notice.