Increase in National Insurance Thresholds – Explained for Directors

25 July 2022

The National Insurance threshold increase announced in the Spring Statement of 2022 took effect from 6 July 2022.

This raised the threshold from which employees start paying National Insurance (NI) contributions from £9,880 a year to now be in line with the personal allowance of £12,570. This was brought in to counteract the ‘Health and Social Care Levy’ that saw an increase to NI contributions from 6 April 2022.

These changes mean that Employees earning below about £34,000 per year will end up paying slightly less NI, and anyone earning more will end up paying slightly more than they did previously. Those earning below the new threshold will end up paying no NI at all. While employees will now start to see these changes reflected on their payslip, Directors (and payroll managers) will want to know what changes they can expect to see.

Firstly, this may be noticed on the payroll reports and payment amounts for liabilities and wages. While the actual costs to employ should not change because of this threshold increase, you may notice that you are paying more or less to HMRC and employees respectively, depending on the salary bands of the employees. This may only be minor, but it’s worth noting, as in combination with the changes from April, there will likely be some variances on the ledger.

Directors may be wondering if this will have an effect on their salary/remuneration amounts. Currently, Directors will typically pay themselves a combination of a small salary through payroll and anything else will be considered a Dividend. The salary amount paid however is typically calculated to the Employers NI threshold of £9,100 per year, not the Employees threshold.

Unfortunately, the only increase being made is to the Employees threshold, with the Employers remaining the same. Upon review this would mean that there is only a very minimal tax saving to be had by increasing the Director’s salary to be in line with the new Employees threshold over the Employers.

This benefit is then further reduced by the loss in the flexibility of the current system, the time it takes to realise the minimal saving and the administration of arranging additional monthly payments to HMRC for the NI. As such it is more practical to pay the salary amount up to the £9,100 threshold.

That said, all Directors and companies have different sets of circumstances and while the above may be true for the vast majority, there are some that would see a more worthwhile saving or benefit. Such as if a Director already pays themselves above the £9,100 per year in salary, or if the company is eligible for employment allowance and has excess allowance left.

If you would like to know more, please contact your client manager, email us at: success@maple.uk.com, or call the office on 01332 207336.

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