Following an announcement by the (then) Chancellor Kwasi Kwarteng on 23 September as part of the Government’s Growth Plan, rates of NIC will be returning to their 2021/22 levels from 6 November 2022. He also confirmed that the proposed Health and Social Care Levy (which was due to take effect from April 2023) will be dropped.

Since then, the current Chancellor, Jeremy Hunt, has reversed many of Kwarteng’s changes, but at the time of writing (prior to the expected fiscal event on 17 November) the NIC change is being retained.

The changes so far

The calculation of NIC depends on two things – the rates which determine how much tax is applied to every pound of earnings and the thresholds which set the limits at which the rates apply.  

On 6 April 2022, the NIC rates for employers and employees all increased by 1.25%.  This was to be a prelude to the introduction of a new separate, Health and Social Care Levy from April 2023. As a result, employer contributions increased from 13.8% to 15.05% and the main rate for employees increased from 12.0% to 13.25%.

Then in July 2022, the primary threshold at which employees start to pay NIC was changed, as part of measures to help with the cost of living crisis. The (then) Chancellor Rishi Sunak, increased the primary threshold to align the point at which employees start to pay NIC with the point at which they pay income tax. For those earning under £34,500, the increased threshold more than compensated for the increased rates earlier in the year, meaning this group would be paying a lower NIC amount in 2022/23 than in 2021/22.

Where are we now?

The 1.25% uplift in rates was scrapped as part of the Growth Plan in September. This has so far avoided subsequent reversal, so that the employer contributions will return to 13.8% and the main rate for employees will drop back to 12.0% from 6 November 2022. This means that both employees and employers will benefit from a lower NIC bill from that date. However, the thresholds will remain unchanged at the July 2022 levels.

What happens in practice?

In practice, much of the work will be done by payroll software. Provided that your software provider has been able to make the changes in time, then you should see the changes feed through in your November payrun(s). If your software provider has not been able to make the changes, then retrospective amendments in December or January are permitted.

If you had included, at the Government’s request, a voluntary notification on your payslips that NIC rates had been increased to fund health and social care, you can now remove this message.

Value of the savings

For an employee on £20,000, the reduction in rates will result in a tax saving of a little under £8/month and a saving of just over £11/month for the employer.

For an employee on £50,000 the reduction in rates will result in a tax saving of a little under £40/month and a saving of just over £42/month for the employer.

The savings for employers are slightly more as employers start to pay NIC at a lower threshold than employees.