The impact of the NIC Increase for Northern business
On Tuesday 7 September 2021, the Government announced that from April 2022 NIC will go up by 1.25% with the introduction of the ‘Health and Social Care Levy’. The Government have pledged to invest the £36 billion raised through the levy into the NHS over the next 3 years to help it recover from the pandemic. This will have a financial impact on employees, employers and self-employed people.
If you run a business, it will cost you more to employ your people from April 2022. If you have already completed budgets past this date, you will need to revisit them. For employees, their take home pay will reduce and for the self-employed they too will have less money after paying your tax and NIC.
From April 2023 this additional 1.25% will be a separate levy similar to the App levy and calculated in the same way as NIC is currently. Whilst it is important to help protect the NHS, it is equally important to protect businesses and individual livelihoods.
The Health and Social Care Levy rates
What is the financial impact of the NIC increase?
The average salary for people in the North of England in 2020 was around £30k. Someone on the average wage for the North will be £255 worse off. The impact may not be significant to some people, but to others the amounts will cause additional burden and financial hardship.
The impact by annual salary level
What can I do?
There are a few things employers could do help alleviate the additional costs.
The main one is salary sacrifice for pensions. If a business has not already got a pensions salary sacrifice in place, introducing it could help fund up to 62% of the additional employer costs. This will also help increase employees take home pay.
This is not new, we have been doing these arrangements for 20 years, but we still hear business leaders say ‘HR don’t want the additional hassle’, ‘the savings aren’t that great’, ‘we are busy with other issues’. Now may be the right time to re-evaluate those positions as a possible way to offset the additional NIC costs.
What else can I do?
There are other areas you can look at, but these will not have a huge impact and will generally be good housekeeping activities.
- Have you claimed the employer allowance? Are you eligible?
- Are your employees working from home now? If so, you could review your pay and benefits structure. Could you remove something that is taxable and start paying something tax free like the working from home allowance.
- Have you got your under-21 population on the correct NIC table?
- Do you have apprentices who under-25 on the correct NIC table?
- Do you operate in any Freeport locations to benefit from the NIC reductions?
You should also talk to an employment tax specialist to explore what options are available to you as a business. You may start the discussion thinking about how to minimise the NIC increase but we might be able to find other ways to reduce your overall employment costs as well.
Contact me or a member of the national employer services team.
Other sources of reading: https://www.bbc.co.uk/news/uk-politics-58474851.