National insurance and NMW changes increase costs for employers

With the national insurance thresholds frozen and the headache of fiscal drag for employers as wages  increase, alongside a higher national minimum wage, there was a lot in the Autumn Statement for employers to digest.

Ian Holloway explores the changes to NIC rates, NIC thresholds and the national minimum wage and explains what it means for employers.

NIC rates

The Health and Social Care Levy (Repeal) Act 2022 is already in place which reduced the 2022/23 national insurance contribution percentages to the 2021/22 levels. This change was effective for pay days on and after 6 November 2022. The Autumn Statement made no changes to these contribution percentages.

NIC thresholds

The National Insurance Upper Earnings Limit (UEL) is aligned to the higher rate threshold. This is the value of the annual personal allowance plus the basic rate limit (£12,570 + £37,700). Therefore, the point at which an individual (who is not a Scottish resident) pays income tax at the higher rate and the point at which they pay national insurance contributions at the lower rate are aligned at £50,270.

This alignment will now remain frozen until 6 April 2028.

The Autumn Statement green book also confirmed:

• The Lower Earnings Limit (LEL) will remain at £6,396 per annum for tax year 2023/24
• The primary threshold (PT) will remain at £12,570 per annum until April 2028, ie up to and including tax year 2027/28. The primary threshold is the point at which the employee starts to pay national insurance contributions
• The secondary threshold (ST) will remain frozen at £9,100 until April 2028, ie up to and including the 2027/28 tax year. The secondary threshold is the point at which the employer starts to pay national insurance contributions
• The UEL, upper secondary threshold (UST), apprentices upper secondary threshold (AUST) and veteran upper secondary threshold (VUST) will also remain frozen at £50,270 until April 2028
• The freeports upper secondary threshold (FUST) will also remain frozen at £25,000 per annum until April 2028

On a per pay period basis, therefore, there are no changes to the NIC thresholds when comparing tax year 2022/23 to 2023/24.

Fiscal drag

Employers already start paying class 1 NIC at a much lower pay level than employees (at £175 per week compared to £242 per week), and frozen threshold will create a real cost for many employers as wage rates rise. However, the government claims (point 5.26 of Autumn Statement) that 40% of employers will not pay employers NIC as their liability will be covered by the employment allowance, which is held at £5,000 per year.

One person companies are not eligible to claim the employment allowance.  

Northern Ireland

There are devolution considerations with regards National Insurance Contributions, as Northern Ireland has its own legislation. However, to all intents and purposes this mirrors that in Great Britain, so it is safe to say that announcements made in the Autumn Statement apply UK-wide.

National Minimum Wage

These rates apply UK-wide and there is no devolution of sharing implications.

The Autumn Statement confirmed that the UK government has accepted the recommendations of the Low Pay Commission for increases from the first full pay reference period starting on or after 1 April 2023. The rates will be as follows, compared to the rates that applied in 2022/23:

In addition, the daily accommodation offset will increase by 4.6% from £8.70 to £9.10. 

The increases are in line with the UK government’s target to ensure that the National Living Wage reaches two-thirds of median earnings by 2024, at which time the 23 age limit will be reduced to 21.

Ian Holloway will be appearing at AccountingWEB Live Expo on 30 November and 1 December, alongside Rebecca Benneyworth, Paul Aplin, Glenn Collins and many other tax experts. You’ll be able to hear in person what the measures really mean for your clients.