For 2022/23 only, the rates of Class 1 (employer and employee) National Insurance contributions are increased by 1.25 percentage points, along with the rates of Class 1A, Class 1B and Class 4 contributions. The NIC increases are a temporary increase pending the introduction of the Health and Social Care Levy from 6 April 2023. The levy will raise ring-fenced funds for health and adult social care; the 2022/23 temporary increases in National Insurance contributions will do likewise. The rates are due to revert to their 2021/22 levels from 6 April 2023 when the new levy comes into effect.

Employer and employee rates for 2022/23

As a result of the temporary NIC increases, for 2022/23, the main rate of primary contribution (payable on earnings that fall between the primary threshold (£190 per week; £823 per month; £9,880 per year) and the upper secondary threshold (£967 per week; £4,189 per month; £50,270 per year)) is set at 13.25% and the additional primary rate (payable on earnings in excess of the upper earnings limit) is set at 3.25%.

Employers will pay secondary contributions at the rate of 15.05% on earnings in excess of the secondary threshold (set at £175 per week; £758 per month; £9,100 per year). Where an upper secondary threshold applies, employers will pay secondary contributions on contributions at 15.05% above the relevant secondary threshold (£967 per week; £4,189 per month; £50,270 per year where the employee is under the age of 21, an apprentice under the age of 25 or an armed forces veteran in the first year of their first civilian employment since leaving the armed forces and £481 per week; £2,083 per month; £25,000 per year where the employee is a new Freeport employee). The 1.25% increase does not apply to earnings charged at the zero rate.

Employers will also pay Class 1A and Class 1B National Insurance contributions at 15.05% for 2022/23.

Identifying increases on the payslip

In the December 2021 issue of their Employer Bulletin HMRC asked employers to include a message for employees on all payslips between 6 April 2022 and 5 April 2023 to explain that their increased National Insurance contributions are being used to meet health and social care costs. They instructed that the payslip message should read ‘1.25% uplift in NIC funds NHS, health & social care’.

HMRC reiterated this request in the February 2022 issue of Employer Bulletin. The article notes that while HMRC have been in contact with payroll software providers to request that they include it in their software packages, they realise that some employers will need to amend payslips directly in order to include this message. HMRC will also be sending out emails to employers to remind them to include this message.

Under Making Tax Digital (MTD) for VAT, VAT-registered traders must keep electronic records and file their VAT returns electronically using software that is compatible with MTD for VAT. Prior to 1 April 2022, MTD for VAT was only mandatory for VAT-registered traders whose turnover for VAT purposes was above the VAT registration threshold of £85,000. VAT-registered traders whose turnover was below the VAT registration threshold could choose whether to join or not.

Extension to all VAT-registered traders

MTD for VAT is extended from 1 April 2022 to all registered traders. VAT-registered traders whose turnover is below the VAT registration threshold of £85,000 and who have not already joined MTD for VAT must do so from the start of their first VAT accounting period beginning on or after 1 April 2022.

Example

John is a VAT-registered trader with turnover for VAT purposes of £50,000. His VAT quarters run to 31 January, 30 April, 31 July and 31 October. He has not yet joined MTD for VAT.

John must start complying with MTD for VAT from 1 May 2022. This is the first day of the VAT quarter to 31 July 2022 and the first day of his first VAT accounting period that begins on or after 1 April 2022.

He must file the return for the period by 7 September 2022 using MTD-compatible software.

Need to register

Traders who are joining MTD for VAT from 1 April 2022 will need to sign up. They can do this via their Government Gateway Account. Alternatively, if they want to use an agent to submit their returns on their behalf, their agent can sign them up, but will need authorisation from the trader  to do so.

Traders who pay by direct debit should avoid signing up too close to the return deadline as they may end up paying their VAT twice. The window to avoid is the period from seven days before the return is due until five days after the return is due.

Electronic records

Under MTD for VAT, the trader must keep their VAT records electronically. This can be done via a software package. Alternatively, spreadsheets can be used. However, where spreadsheets are used, these must be linked to the return – figures should not be entered manually.

Return software

VAT returns must be filed using software that is compatible for MTD for VAT. HMRC publish details of software packages that can be used (see www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-vat). However, it should be noted that HMRC do not recommend particular products. Traders should find a product that they are happy with in advance of the deadline

Worth de-registering?

Traders whose turnover is under the VAT registration threshold may wish to review whether, in light of the need to comply with MTD for VAT, it remains beneficial to be VAT-registered.

Plastic packaging tax is a new tax that comes into effect from 1 April 2022. The tax has a green agenda – its aim is to reduce the amount of plastic packaging that does not contain at least 30% recycled plastic.

Liability

The tax applies to packaging that it predominantly plastic by weight and which does not contain at least 30% recycled plastic by weight. It is levied on those who manufacture or import plastic packaging. The tax arises when the packaging component is finished, or where it is imported, when it is imported.

However, to ensure that the administrative burden is not disproportionate, it only applies to those who manufacture or import at least 10 tonnes of plastic packaging within the scope of the tax each year. Guidance on what constitutes plastic packaging for the purposes of the tax can be found on the Gov.uk website (see https://www.gov.uk/guidance/work-out-which-packaging-is-subject-to-plastic-packaging-tax).

Where the tax applies, it is charged at the rate of £200 per tonne.

Registering

Manufacturers and importers who are liable for the tax will need to register with HMRC from 1 April 2022. This can be done online. A business must register when they have manufactured or imported 10 or more tonnes of plastic packaging within the scope of the tax, or if they plan to do so in the next 30 days. Therefore, when determining whether a liability to register arises, it is necessary to look both backwards and forwards. As the tax only applies from 1 April 2022, in the first year of the tax, there is no need to look back before 1 April 2022.

Where the threshold of 10 tonnes in the previous 12 months is reached, the liability to register arises from the first day of the month following that in which the threshold was reached. Registration must be done within 30 days.

Example

A business manufactures 4 tonnes of plastic packaging containing less than 30% recycled plastic each month. By 30 June 2022, they have manufactured 12 tonnes of packaging since 1 April 2022. As the 10 tonne threshold has been exceeded on 30 June 2022, the liability to register arises on 1 July 2022. The business must register by 30 July 2022.

Where a business expects to exceed the 10 tonne threshold in the next 30 days, the requirement to register arises from the date that the business expects to be liable to register. Again, the business must register within 30 days.

Example

A business normally manufactures 2 tonnes of plastic packaging a month. On 4 May 2022 it receives an order for 15 tonnes of plastic packaging that contains less than 30% recycled plastic. The liability to register arises on 4 May 2022 and the business must register by 2 June 2022.

Planning tips The tax is payable by the manufacturer or importer, not by the end user. However, depending on price sensitivity, they may be able to pass the cost on. As the tax only applies where the plastic packaging does not contain at least 30% recycled plastic, increasing the recycled element to at least 30% will remove liability of the tax. Likewise, moving away from plastic packaging so that the 10 tonne threshold is not breached will also take a business outside the tax, increasing its green credentials in the process.

The Employment Allowance is a National Insurance allowance that eligible employers can claim and set against their secondary Class 1 National Insurance liability.

The allowance is set at £4,000 for 2021/22 (capped at the employer’s secondary National Insurance liability for the year where this is lower).

Can you claim it?

Not all employers are able to claim it. At the lower end of the scale, it is not available to companies where the sole employee is also a director. This means that most personal companies cannot benefit. However, a company with more than one employee or one where the sole employee is not a director can benefit from the allowance.

It should be noted here that HMRC guidance stipulates that the allowance is not available if there is only one employee ‘paid above the National Insurance secondary threshold’ and that employee is also a director. However, there is no requirement in the legislation for employees to be paid above the secondary threshold to be counted, and the allowance is (in accordance with the legislation) available unless all the payments of earnings in the year are made to the same person and that person is a director. Thus, companies with at least two employees at some point in the tax year should be eligible for the allowance.

At the other end of the spectrum, companies whose Class 1 National Insurance liability for the previous tax year is £100,000 or more do not qualify for the allowance.

Impact of claim on optimal salary

The availability or otherwise of the employment allowance determines the optimal salary level in a family company scenario. Assuming that the personal allowance is not used elsewhere, for 2021/22, the optimal salary where the employment allowance is not available is one equal to the primary threshold of £9,568. However, where the employment allowance is available, the optimal salary for 2021/22 is equal to the personal allowance of £12,570.

Not too late to claim

The employment allowance has to be claimed through the payroll. If a claim has not yet been made for 2021/22 it is not too late.

In a family company scenario where the alternative arrangements are used for National Insurance (such that NIC is assessed each pay period as for other employees, rather than on an annual basis), it may be easier to pay the director a salary equal to the secondary threshold of £737 per month for the first 11 months of the tax year. This prevents the need to pay any National Insurance over to HMRC. If the company is eligible to claim the employment allowance, they can claim it in March and make a final payment for the tax year of £4,463 to take pay up to £12,570, the level of the personal allowance for 2021/22 (£12,570 – (11 x £737) = £4,463). There will be some primary Class 1 National Insurance on earnings for the year above the primary threshold of £9,568 The primary NIC bill is £360.24 ((£12,570 – £9,568) @12%). However, this is offset by the corporation tax savings on the higher salary at 19%.

The allowance can be claimed after the end of the year if a claim is overlooked. In this situation, you can ask HMRC to use it to pay other tax that the company may owe, including VAT and corporation tax if you do not owe any PAYE and National Insurance. If you have no tax to pay, you can ask for a refund.

You cannot carry forward any unused amount of the allowance to later tax years. If your secondary NIC bill is less than £4,000, the employment allowance is capped at this level.

The nature of a gift is that it is something that is given to some without receiving a payment in return. Consequently, as nothing is received in return it would, at first sight, seem unlikely that making a gift could trigger a capital gains tax liability.

However, unfortunately that is not the case and the making of a gift can indeed, in certain circumstances, give rise to a capital gains tax liability.

Market value

The making of a gift is a disposal for capital gains tax purposes. As the disposal is not by way of an arm’s length bargain (i.e., the price in a free market), the disposal proceeds are the market value at the time the gift was made, rather than the amount received by the person making the gift (i.e. nothing). From a capital gains tax perspective, unless the gift is to a spouse and the no gain/no loss rules apply or is exempt from capital gains tax, rather than the donor making a loss equal to the cost of the gift, a gain may be realised instead.

Example

Dolly has a painting which her niece has always loved. She purchased the painting many years ago for £100. The artist is currently very popular and the painting is now worth £20,000.

On giving the gift to her niece, Dolly is treated as if she had disposed of the painting for its market value of £20,000. Consequently, she makes a capital gain of £19,900. Assuming her annual exemption of £12,300 remains available, she must pay capital gains tax on a gain of £6,800.

Gifts to spouses/civil partners

Transfers between spouses are deemed to be at a value that gives rise to neither a gain nor a loss. If instead of giving the painting to her niece, Dolly had given it to her husband David, the deemed consideration would be £100 (the value that creates neither a gain nor a loss) and David would be treated as having acquired the painting for £100. In this situation there is no capital gains tax liability on the gift.

Gifts to a charity

Capital gains tax is not payable on a gift to a charity.

Relief for gifts of business assets

The relief for gifts of business assets allows the capital gains tax that might arise on the gift of a business asset to be deferred by ‘rolling over’ the gain so that the recipients base cost is reduced by the deferred gain. However, while this means that there will be no capital gains tax to pay at the time of the gift, the recipient will realise a larger gain when they dispose of the asset. The relief effectively shifts the liability from the donor to the recipient.

It is prudent to plan ahead for retirement and tax breaks are available to encourage savings into a registered pension scheme.

Contributions into a registered pension scheme attract tax relief as long as the contributions are covered by the available annual allowance and are not more than 100% of earnings (or £3,600 if higher).

Tax-relieved lifetime pension savings are capped by the lifetime allowance, currently set at £1,073,100.

Annual allowance

The annual allowance places a ceiling on the amount of tax-relieved contributions that can be made to a registered pension scheme each year. Contributions made by an employer count towards the annual allowance.

The annual allowance is set at £40,000. However, it is reduced where both adjusted net income is more than £240,000 (broadly income including pension contributions) and the threshold income (broadly income excluding pension contributions). Where this is the case, the annual allowance is reduced by £1 for every £2 by which adjusted net income exceeds £240,000 until the minimum amount of the annual allowance is reached. For 2021/22 this is £4,000. Consequently, where a person has adjusted net income of at least £312,000 and threshold income of at least £200,000, they only receive the minimum annual allowance of £4,000.

A lower annual allowance – the money purchase annual allowance (MPAA) – applies where a person has flexibly accessed their pension pot having reached age 55.

If contributions are made in excess of the annual allowance, a tax charge applies (the annual allowance charge) which effectively claws back the relief that was not due.

If the annual allowance is not used in full in the tax year, the unused amount can be carried forward for up to three years. However, the current year’s allowance must be used up before using allowances from earlier years. Where brought forward allowances are utilised, those from an earlier year are used before those of a later year.

Year-end planning

Any annual allowance brought forward from 2018/19 will be lost if not used before 6 April 2022. However, the annual allowance for 2021/22 must be used in full before the allowances brought forward from 2018/19 can be utilised.

Example

Richard has earnings of £150,000 for 2021/22. He has an annual allowance of £40,000. He has historically made pension contributions of £25,000 a year and has unused allowances of £15,000 a year for each of the years 2018/19, 2019/20 and 2020/21.

He received an inheritance in January 2022 and is considering making additional contributions.

To prevent his unused allowances from 2018/19 from being wasted, he can make contributions of £55,000 before 6 April 2022. This will fully utilise the annual allowance for 2021/22 and £15,000 unused allowance from 2018/19. He could also make further contributions of up to £30,000 if he wished to use the available allowances for 2019/20 and 2020/21.

He could instead carry these forward. He will have until 5 April 2023 to use the allowances from 2019/20 and until 5 April 2024 to use the allowances from 2020/21. However, to access these allowances he would need to use up his current year annual allowance first.

If he makes contributions of £55,000 on or before 5 April 2022, he will prevent the unused 2018/19 allowances from being wasted. Assuming he is a higher rate taxpayer, the contributions of £55,000 will ‘cost’ him £33,000 as he will benefit from tax relief at 40%.

He will also need to check that making the contributions does not take the value of his pension pot above the lifetime limit.

Corporation tax is being reformed and companies with profits of more than £50,000 will pay corporation tax at a higher rate than they do now. While the changes do not come into effect for a year, applying from the financial year 2023 which starts on 1 April 2023, their impact will be felt sooner where accounting periods span 1 April 2023. Consequently, they will be relevant to accounting periods of 12 months starting after 1 April 2022.

Nature of the changes

From 1 April 2023, the rate of corporation tax that you pay will depend on the level of your profits and the number of associated companies that you have if any.

If your profits are below the lower limit, from 1 April 2023, you will pay corporation tax at the small profits rate. At 19%, this is the same as the current rate of corporation tax.

If your profits are above the lower limit, you will pay corporation tax at the main rate. This has been set at 25% for the financial year 2023.

If your profits fall between the lower limit and the upper limit, you will pay corporation tax at the main rate, but you will receive marginal relief which will reduce the amount that you pay. Marginal relief is calculated in accordance with the following formula:

F x (U-A) x N/A

Where:

• F is the marginal relief fraction (set at 3/200 for the financial year 2023);
• U is the upper limit;
• A is the amount of augmented profits (profits plus dividends from non-group companies); and
• N is the amount of total taxable profits.

Where a company benefits from marginal relief, the effective rate of corporation tax will be between 19% and 25%. A company with profits nearer the lower limit will receive more marginal relief than a company with profits nearer the upper limit and pay tax at a lower rate.

The lower limit is £50,000 and the upper limit is £250,000 for a company with no associated companies. Where a company has one or more associated companies, the limits are divided by the number of associated companies plus 1, so that, for example, the lower limit for a company with one associated company will be £25,000 and the upper limit will be £125,000.

The limits are time apportioned where the accounting period (or pro rata period) is less than 12 months.

Plan ahead

Where the accounting period spans 1 April 2023 the profits for the period are apportioned and those relating to the period prior to 1 April 2023 will be taxed at the financial year 2022 corporation tax rate of 19%, while those relating to the period from 1 April 2023 to the end of the accounting period are taxed at the relevant rate for the financial year 2023 depending on the company’s profits.

Where the company will from April 2023 pay corporation tax at a rate above 19%, now is the time to plan ahead and, where possible, accelerate profits so that they fall in the current accounting period rather than one spanning 1 April 2023. On the other side of the coin, delaying costs so that they fall in a period spanning 1 April 2023 rather than the current period will also reduce the tax that is payable at a rate above 19%.

Example

ABC limit prepares accounts to 30 September each year. It has annual profits of £300,000.

Its profits for the year to 30 September 2022 will be taxed at 19%.

However, its profits for the year to 30 September 2023 will be time apportioned and six months’ worth will be taxed at 19% and the remaining six months’ worth at 25% — an effective rate of 22%. The company accelerates a profitable contract so that it is completed before 30 September 2023 so that the profit is taxed at 19%.

If you operate your business through a personal or family company and extract profits in the form of dividends, it is prudent to review your dividend policy to determine whether it would be beneficial to pay a further dividend before the end of the 2021/22 tax year on 5 April 2022. It should be remembered, however, that dividends can only be paid if you have sufficient retained profits, and where shares of the particular class in respect of which a dividend is being declared are held by more than one shareholder, in proportion to shareholdings.

Paying a dividend before the end of the tax year may be worthwhile if:

• shareholders have unused dividend allowances; or
• to beat the dividend tax rate increases that come into effect from 6 April 2022.

Utilise dividend allowances

All individuals, regardless of the rate at which they pay tax, have a dividend allowance. This is set at £2,000 for 2021/22. The dividend allowance operates as a zero rate band and dividends (which are taxed as the top slice of income) are tax-free to the extent that are covered by the dividend allowance. However, the dividend allowance does use up part of the tax band in which it falls.

If any shareholders have not fully used their dividend allowance for 2021/22, paying a dividend to take their dividends for the tax year up to £2,000 will be beneficial allowing profits to be extracted from the company without any further liability to tax. If an alphabet share structure is used, dividends can be tailored to match the unused amount of the dividend allowance; if there is only one class of share, dividends must be paid in proportion to share holdings.

Example

Fletcher Ltd is a family company in which Bertie Fletcher and his wife Jane are directors. Bertie holds 100 A Class shares and Jane holds 100 B Class shares. The couple each take a salary, which for 2021/22 is equal to the personal allowance of £12,570. In addition, the company has declared dividends of £37,700 for both A Class and B Class shareholders.

The couple have two sons, Chris and David. Chris holds 100 C Class shares and David holds 100 D Class shares. Chris has £1,500 of his 2021/22 dividend allowance available, while David’s dividend allowance remains available in full.

To utilise the dividend allowances to extract profits free of tax, the company pays a dividend of £15 per share to C Class shareholders and a dividend of £20 per share to D Class shareholders on 30 March 2022. Chris receives a dividend of £1,500, which are covered by his available dividend allowance, and David received a dividend of £2,000, which is covered by his dividend allowance. No dividends are declared for Class and Class B shares.

Beat the dividend rate rise

As part of a package of measures to fund health and social care, the rates at which dividends are taxed are to rise by 1.25% from 6 April 2022. This will mean that for 2022/23, dividends will be taxed at 8.75% to the extent that they fall in the basic rate band (currently taxed at 7.5%), at 33.75% to the extent that they fall in the higher rate band (currently 32.5%) and at 39.35% to the extent that they fall within the additional rate band (currently 38.1%). The dividend allowance will remain at £2,000 for 2022/23.

If retained profits permit, it may be advisable to pay dividends before 6 April 2022 if doing so means that they are taxed at a lower rate than if paid after that date. However, if paying a further dividend before 5 April 2022 means that it will fall in a higher tax band than if paid after that date, it will not be beneficial – it is preferable to pay tax at 8.75% than at 32.5%.

Example

Ali is the director of his personal company A Ltd. In 2021/22 he is paid himself a salary of £9,568. He also received a dividend each year of £20,000 on 30 April. He has retained profits of £50,000. If instead of paying the dividend of £20,000 that is due to be paid on 30 April 2022, £18,000 of that dividend is paid on 30 March 2022, the tax payable will be £1,350 (£18,000 @ 7.5%) rather than £1,575 (£18,000 @ 8.75%) if the dividend is paid on 30 April 2022. The remaining £2,000 of the dividend can be paid on 30 April 2022 as planned as it will be sheltered by the dividend allowance for 2022/23.

Paying £18,000 of the dividend before 6 April 2022 to beat the tax rise will save Ali £225 in tax.

Transactions between a director and his or her personal or family company are common and a director’s loan account is simply an account for recording the transactions that occur between the two.

However, there are tax consequences for the company if the director owes money to the company and the loan remains outstanding nine months and one day after the end of the accounting period in which it was made. This is the date that the corporation tax for the period is due. Where this is the case, the company must pay tax (Section 455 tax) of 32.5% of the overdrawn balance.

Avoiding a Section 455 tax charge

A Section 455 charge can be avoided if the outstanding loan balance is cleared before the corporation tax due date. However, anti-avoidance rules apply, and care should be taken not to fall foul of these rules. The rules seek to ensure that any repayments are genuine repayments, rather than transactions designed to avoid the Section 455 charge.

Rule 1: The 30-day rule

The 30-day rule comes into play where, within a period of 30 days of a repayment of more than £5,000, the participator borrows again from the company.

Section 455 tax is payable on the lesser of the amount of the loan repaid and the amount re-borrowed. This rule renders the repayment ineffective to the extent that the funds are re-borrowed within 30 days.

It doesn’t matter which comes first, the loan repayment or the further borrowing, the 30-day period applies equally. This prevents a participator from taking out a new loan and using it to repay all or part of the original one.

Rule 2: The intentions and arrangements rule

The intentions and arrangements rule gives the taxman a second bite of the cherry where the 30-day rule does not apply because the period between the repayment and the new loan is more than 30 days. This rule applies a motive test and can catch repayments and further borrowing more than 30 days apart where the intention is to avoid tax.

The intention and arrangements rule comes into play where the balance of the loan outstanding immediately before the repayment is at least £15,000 and, at the time a loan repayment is made, there are arrangements, or an intention, to subsequently borrow £5,000 or more.

This rule applies even where the new borrowing is outside 30 days. The rule bites if the repayment is made with the intention of redrawing at least £5,000 of the payment, irrespective of when this is done. This means waiting 31 days before re-borrowing the funds will not necessarily work.

Again, the rule does not apply to funds extracted by way of a dividend, salary or bonus, as these are within the charge to income tax.

Genuine repayment

Clearing an outstanding loan balance to avoid a Section 455 charge will only be tax-effective if this is done either by means of dividend, bonus or salary payment, which attracts tax charges in their own right, or by using funds from outside the company to make a genuine repayment.

To help meet the costs of health and adult social care, a new levy, the Health and Social Care Levy, is introduced from 6 April 2023. Payment of the levy, which is set at the rate of 1.25% of qualifying earnings, is linked to the payment of National Insurance contributions.

Prior to the introduction of the levy and in order to start raising ring-fenced funds for health and adult social care from 6 April 2022 onwards, the rates of ‘qualifying’ National Insurance contributions are to increase by 1.25% for 2022/23 only. Qualifying National Insurance contributions are Class 1, Class 1A, Class 1B and Class 4. Thus, employees, employers and the self-employed will be hit by the rises for 2022/23, and by the levy from 6 April 2023.

The National Insurance rates are due to revert to their 2021/22 levels from 6 April 2023 when the Health and Social Care Levy comes into effect.

Impact on employees

For 2022/23, employees will pay primary National Insurance contributions at the main rate of 13.25% on earnings between the primary threshold (set at £190 per week for 2022/23) and the upper earnings limit (set at £967 per week for 2022/23), and at the additional rate of 3.25% on earnings in excess of the upper earnings limit.

For 2021/22, the main rate is 12% (payable on earnings between £184 per week and £967 per week) and the additional rate is 2% (payable on earnings in excess of £967 per week).

The following case studies demonstrate the impact of the rate rises, which will depend to the extent to which they are offset by the increase in the primary threshold.

Case study 1

Karen is paid £185 per week. For 2021/22, she pays primary contributions of 12p per week. However, for 2022/23, she will not pay any contributions (but will be treated for state pension purposes as having made notional contributions) as her earnings are below the primary threshold of £190 per week.

She is unaffected by the rate rises, and benefits from the increase in the primary threshold.

Case study 2

Clive is paid a salary of £24,000, paid monthly at the rate of £2,000 per month. His pay remains the same in 2022/23 as in 2021/22.

The monthly primary threshold is £833 for 2022/23 and the monthly upper earnings limit is £4,189. For 2021/22, the monthly primary threshold is £797 and the monthly upper earnings limit is £4,189.

For 2021/22, Clive pays primary National Insurance contributions of £144.36 (12% (£2,000 – £797)).

For 2022/23, Clive pays primary National Insurance contributions of £154.63 ((13.25% (£2,000 – £833).

The combined impact of the rate rise and the increase in the primary threshold will mean that Clive will pay an additional £10.27 each month in National Insurance contributions.

Case study 3

Rebecca is a company director with a salary of £150,000 a year.

The annual primary threshold is £9,880 for 2022/23 and £9,568 for 2021/22. The annual upper earnings limit is £50,270 for both years.

For 2021/22, Rebecca pays primary Class 1 National Insurance of £6,878.84 ((12% (£50,270 – £9,568)) + 2% (£150,000 – £50,270))).

For 2022/23, Rebecca pays primary Class 1 National Insurance of £8,592.91 ((13.25% (£50,270 – £9,880)) + (3.25% (£150,000 – £50,270))).

As a result of the rate increases, Rebecca will pay £1,713.07 more in National Insurance contributions in 2022/23 than in 2021/22.