National Insurance increase: quick guide for small business owners

The National Insurance increase came into effect on 1st April 2022, so what does this mean for small business owners across the UK?

The Government’s plan for a hike in National Insurance contributions was originally designed to raise £12 billion a year for the NHS and social care. The idea was to help fund the long-term care costs for our ageing population, but the Covid-19 pandemic means the money will be a much needed boost to the under pressure NHS. Rishi Sunak’s 2022 Spring Statement then following on 23th March 2022, which again included changes that will impact the National Insurance we pay.

While it’s good news for our health service, small businesses are expected to pay their share of the National Insurance increase. Our experts have put together this quick guide covering everything you need to know…

Who pays National Insurance?

National Insurance is basically a tax paid by company employees (Class 1), the self-employed (Class 2 & 4) and by employers on earnings (Classes 1, 1A and 1B). Exemptions include the low paid and any income from pensions or investments (such as share dividends or property revenue).

Business owners who are directors of a limited company are also classed as an employee and pay Class 1 National Insurance through their PAYE payroll.

Certain people pay less National Insurance, including a married woman or widow with a valid ‘certificate of election’ or someone with more than one job (each job, providing it’s a different employer, has its own national insurance limits and tax free threshold).

The new rates mean that National Insurance is now liable on earnings above £9,880 (up from £9,568) from April 2022. However, as announced in Rishi Sunak’s Spring Statement, both the Primary Threshold and the Lower Profits Threshold (the tax free National Insurance thresholds for the employed and self-employed) will increase to £12,570 from July 2022. This aligns the National Insurance thresholds with the income tax personal allowance, meaning employees can receive up to £12,570 tax free. The higher-rate threshold is £50,270 (which has stayed the same).


From an employer’s perspective, the Spring Statement also saw an increase to the Employment Allowance announced, increasing this from £4,000 to £5,000. This allows eligible businesses to get up to £5,000 relief on their employer class 1 National Insurance contributions (including the Health and Social Care Levy, which is discussed below). This will make it slightly more attractive for smaller businesses to hire staff.

How much has National Insurance increased?

From April 2022, the rates went up by 1.25%, so the main rate for employees has increased from 12% to 13.25%. From April 2023, the 1.25% National Insurance increase will be replaced by a new Health and Social Care Levy (with National Insurance reverting to its pre-April 2022 level). The levy will also apply to the earnings of those above the state pension age.

Similarly, the dividend tax rate has also increased by 1.25%, so it’s now 8.75% for basic-rate income taxpayers and 33.75% for higher-rate taxpayers.

What does the National Insurance increase mean for workers?

The rates of National Insurance depend on employment status and earnings. Remember that the self-employed pay less National Insurance than company employees, but they will face the same 1.25% rate rise.

The Spring Statement 2022’s fact sheet states:

  • From July, around 70% of workers who pay NICs will pay less NICs than they otherwise would have, even after accounting for the introduction of the Health and Social Care Levy.
  • 2.2 million people will be taken out of paying Class 1 (Employee NICs) and Class 4 NICs (Self-Employed NIC’s) and the Health and Social Care Levy entirely, on top of the 6.1 million workers who already do not pay NICs.
  • From April 2022 self-employed individuals will not pay Class 2 NICs on profits between the Small Profits Threshold (£6,725) and Lower Profits Limit (£12,570), but they will continue to be able to build up National Insurance credits. This will benefit around half a million self-employed people by up to £165 a year.

Statements from the ‘Spring Statement 2022: Personal Tax Factsheet’.

How do I pay National Insurance?

Employees pay National Insurance every month, just like income tax. Employers deduct the tax due from the wages before they pay staff, which will be shown on the payslips.

The self-employed pay Class 2 and 4 National Insurance, depending on their profits. This will be handled by their self-assessment tax return. HMRC will inform you how much National Insurance is due once you have filed your tax return.

You can always check your National Insurance record by contacting HMRC using this link: https://www.gov.uk/check-national-insurance-record

What are voluntary contributions?

You can top up your National Insurance by making a voluntary contribution. These apply when:

  • You are self-employed with profits under £6,515 a year
  • You have a job and do not qualify for Class 2 National Insurance (e.g. property developer)
  • You have gaps in your National Insurance payment history and are concerned it could affect your access to benefits, like the state pension.

Do you need help?

If you have any queries regarding how the National Insurance increase will affect your business, you can contact our friendly experts on 0845 606 9632 or email team@thesmartaccountants.co.uk.


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