The 2022 National Insurance Changes – How umbrella workers are affected

26 September 2022
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UPDATE – 23 September 2022 – Part of the Conservative’s new agenda to stimulate the economy, the National Insurance increase that has been in place since April would be reversed from November 2022.

As you may be aware, in the 2021 autumn budget, the UK Government announced that from 6 April 2022, National Insurance Contributions (NIC) would increase temporarily for employers and workers. The Government will direct this additional revenue to the NHS and Social Care in the UK until a separate ‘Health, and Social Care’ (H&SC) levy is introduced on 6 April 2023.

What was the reason behind the initial increase in April?

The last couple of years has left the NHS and social care with much-needed public funding. With other resources also depleted, the Government will be increasing our National Insurance Contributions, hoping to raise £12 billion.

From April 2022, we saw an increase of 1.25% in National Insurance Contributions for the self-employed and the employed. At the same time, employers experienced a similar rise in Employer National Insurance payments.

The increase was going to last a year, after which National Insurance rates would return to their current levels, while the 1.25% tax increase renamed as the “Health and Social Care Levy”.

How will National Insurance contributions change from November 2022?

The April increase affected anyone who pays NI unless they are over the state pension age or earn less than the Primary Threshold (£9,880).

  • The National Insurance threshold (earnings above which we start paying NI) was increased from July 2022 to match the Personal Allowance (£12,570).
  • Employers, including umbrella companies, have seen their Employer’s National Insurance rates increase from 13.8% to 15.05%, which will now revert back to 12% and 13.8%, respectively, from November 2022.
  • Employees across the UK have seen 1.25% added to their NI contribution deductions on their payslips from 12% to 13.25%. That’s an increase of £130 on a £20K salary and £505 on a £50K one, which employees will now get back from November 2022.
  • Sole traders’ Class 4 NIC rate increase to 10.25% from April 2022 will revert back to 9% from November 2022.
  • Umbrella company employees are subject to both Employer and Employee National Insurance contributions, so they had seen an increase of 2.5%. No, that’s not a type-o, but a double hit due to the unique employment arrangement explained below. They will benefit the most from the reversal of the NI rates from November.

Why are umbrella workers affected differently?

“Limited” or “Umbrella” rates are inclusive of all costs as they include additional deductions over the usual employee NI, tax and pension rates. This means that payments sent across from the recruitment agency to the umbrella company need to cover employer costs, such as the Employer’s NI, Employer’s pension and the Apprenticeship Levy.

All employers, including Umbrella companies, are required to deduct these before arriving at the gross pay amount subject to PAYE (payroll) deductions. Therefore, the umbrella worker may easily believe they are being deducted two amounts of National Insurance, Employers and Employees.

What can umbrella workers do to minimise the impact?

Without further uplift on their rate, umbrella workers have contributed more towards social care and helping the NHS since April 2022 than the rest of the UK. If you negotiated an uplift to match the NI increase, you are in luck; if not, your pay will revert back to the levels before April 2022.

*Please remember that your umbrella company will not be able to help or negotiate your rate, as its only role in the umbrella employment scenario is to be an intermediary and make payroll deductions per regulations set by HMRC.

What do the latest updates mean for you?

Like any UK worker, any payments made to you from 6 November 2022 will be subject to the new (old) NI rates above. As you are engaged via an umbrella company, your assignment rate includes employer and employee NI contributions. Feel free to use our online calculator to see what impact this will have on your weekly or monthly earnings.

About SmartWork

SmartWork has been a member of FCSA since 2015 and goes through its rigorous audit every year to ensure compliance and retain the highest customer service standards. Our long-standing membership guarantees that tax and NI deductions are made in compliance with HMRC rules and regulations.

If you are looking for a compliant umbrella company, why not call one of our business managers and see how we can help you in your contracting journey? Our number is 0800 434 8446, or feel free to send us a message via info@smartwork.com.

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