Reversal of National Insurance and dividend tax increases

Subsequently, on 17th October, the Government reversed course again, and announced that the 1.25% increase to dividend tax rates which took effect in April 2022 will now remain for the foreseeable future. However, the reversal of the National Insurance increase and the Health and Social Care Levy will remain.In addition, the Government also announced during the mini-Budget that it will be cancelling the Health and Social Care Levy.  This significant change will see the Government reduce NIC rates from 6th November 2022, by 1.25%. 

What this means for directors  

Directors in limited companies pay NICs on an annual basis, therefore a blended rate will be applied to ensure consistency with employees. The main and additional NICs rates will be set at 12.73% and 2.73% respectively in 2022/23. 

What this means for the self-employed  

As with directors of limited companies, sole traders and partners in trading partnerships pay NICs on an annual basis, and for the 2022/23 tax year, the Government announced that the main and additional rates of Class 4 NICs will be set at 9.73% and 2.73% respectively. The self-employed will see their reduction reflected in their 2022/23 tax return. 

What this means for employees and employers

The Government confirmed it will cut national insurance by 1.25% for both employees and employers from 6th November 2022. 

The Government believes the majority of employees will see the NICs cut reflected in their November 2022 pay, directly via their payroll.  

This will bring a welcome boost in employee pay packets and employer payroll costs. The Government estimates that in 2022/23 the average employee will benefit from the following savings: 

Estimated average employee savings 

	2022/23	2023/24
Average basic rate taxpayer	£75	£175
Average higher rate taxpayer	£300	£700
Average additional rate taxpayer	£1,650	£3,890

The Government has accepted that the use of some complex payroll software systems, may mean some taxpayers will receive a backdated adjustment in December 2022, or perhaps even January 2023 in some instances. 

Most employees will receive their refund automatically through their pay and no action should be needed. The Government has identified that there could be instances where employees may need to apply to HMRC directly for their refund. The sort of limited exceptions where this could apply include where an employer is no longer trading, or where an employee has moved roles and their previous employer is unable to issue a refund retrospectively. 

We are hopeful HMRC will create a simple system to facilitate simple refund claims for the small number of employees who will be impacted. 

 

Last updated: 20th October 2022