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National Insurance increase reversed

Makbool Javaid, Partner - Simons Muirhead & Burton
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The government has announced that the 1.25 percentage point rise in National Insurance will be reversed from 6 November. The government will also cancel the planned Health and Social Care Levy – a separate tax which was coming into force in April 2023 to replace this year’s National Insurance rise. 920,000 businesses will see a cut in National Insurance bills, with 20,000 taken out of paying National Insurance entirely due to the Employment Allowance, which rose in April 2022 from £4,000 to £5,000.

In particular, many small and medium businesses (SMEs) – who employ over 13 million people in the UK – will see a cut to their National Insurance bills. Next year this will be worth £4,200 on average for small businesses and £21,700 for medium sized firms who pay National Insurance. In total 905,000 micro, small and medium businesses will benefit from 2023-24.

National Insurance thresholds increased in July 2022 to lift 2.2 million of the poorest people in the UK out of paying the tax. The Chancellor has committed to retaining the level of these thresholds to support families. Taken together, the higher thresholds and the Levy reversal mean that almost 30 million people will be better off by an average of over £500 in 2023-24.

The announcement of the rate change, which will be effective for payments of earnings on or after 6 November 2022, gives just over six weeks for the changes to be made, and even less for employers due to pay employees on or soon after 6 November.

If payroll software cannot be updated for payments due on or after 6 November, it is not clear how employers will be able to retrospectively correct the position save by applying for refunds which will create a lot of work for employers and HMRC.

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