Over the past 2 years, the pandemic, supply chain issues and tumultuous world events have all played a critical role in shaping the cost of living in the UK. As these costs of living have increased, the Parliament decided to offset them by increasing the national insurance threshold.
Offsetting the increase in the cost of living? That sounds like a great idea! But is it? How does this affect you as a business owner? Will this affect your business? How does it affect your employees? Understanding how these changes may impact you and your business is key to being prepared and making any necessary adjustments.
Why is the National Insurance Threshold Increasing?
The pandemic has been extremely expensive and the costs have been particularly profound on the NHS. To combat this, the Health and Social Care Levy is being implemented to bolster the NHS’s coffers as it recovers from the impacts of the coronavirus. This increase is set to raise £12 billion per year to offset these costs once it is implemented.
This means that while the national insurance threshold (which is the amount at which you begin paying national insurance on your wages) has been raised by £3000 per year (to 12,750 pounds), an additional 1.25% tax has been added to any earnings past that threshold.
When is the National Insurance Threshold Increasing?
These new changes are set to take effect on April 6, 2022, at the beginning of the new fiscal year. This increase to the national insurance threshold has been touted as a measure that will be beneficial for all Brits, however, the true impact of these measures (and the negative financial impacts) will fall on the shoulders of business owners.
How Will You Be Affected by the Increasing Insurance Threshold?
The true cost of these changes will be in the cost of staffing. If you are an employer, your national insurance will go up. If you are self-employed, the cost of your national insurance will go up as well.
- Are you self-employed?
As a self-employed person, you are required to pay either Class 2 or Class 4 NIC’s. Being self-employed, and the fact that you pay your own salary, any tax on your earnings will directly affect your take-home income negatively.
- Do you own a small business?
Both employers and employees are required to pay Class 1 National Insurance, 12% for employees and 13.8% for employers on earning up to £50,000. With an increase of 1.25%, that means that you, as a business owner, will be paying 15.05% in national insurance on all of your employees’ wages. This can add up quickly and is an unnecessary burden, especially coming out of an already hard time due to lockdowns and government restrictions.
What Can You Do to Prepare?
Knowing exactly how to work with these new changes may take hiring a professional accountant, such as AccountingPreneur. As a business owner, you have enough to do running your business. By hiring a tax professional, you can rest assured that you have people working to figure out how to best navigate this new territory.
