![\"NIC](\"http:\/\/my-brains.co.uk\/jackross\/wp-content\/uploads\/2022\/07\/headway-5QgIuuBxKwM-unsplash-scaled.jpg\")
<\/a><\/figure><\/div>\n\n\n\nFrom 6 July, the new thresholds will come into effect. But what does that mean for you?<\/p>\n\n\n\n
As a self-employed worker, you will already pay your National Insurance differently to that of an employee. But now your threshold is changing, you\u2019ll need to know how much by and when.<\/p>\n\n\n\n
This article will explain all the changes and what this means for you and your business.<\/p>\n\n\n\n
<\/a>How does National Insurance work?<\/h2>\n\n\n\nBefore we go into detail about how the new NICs thresholds will affect you, let\u2019s start with an overview of the National Insurance system.<\/p>\n\n\n\n
There are different classes of NICs which will vary depending on your employment status and whether you choose to voluntarily pay contributions.<\/p>\n\n\n\n
Class 1 NICs <\/strong>are paid by employers and employees. Employees pay Class 1 NICs if they are under the state pension age and earn more than the primary threshold<\/strong>. This is <\/strong>in the majority of cases. These are automatically deducted by employers.<\/p>\n\n\n\nClass 1A and 1B NICs <\/strong>are paid directly byemployers on their employees\u2019 expenses or benefits.<\/p>\n\n\n\nClass 2 NICs <\/strong>are paid byself-employed people earning more than the small profits threshold<\/strong>. If you earn less than this, you can choose to pay voluntary contributions to fill in the gaps in your National Insurance record.<\/p>\n\n\n\nClass 3 NICs <\/strong>are voluntary contributions paid to fill gaps in your National Insurance record. You might need to do this if you are unemployed or earn below certain thresholds.<\/p>\n\n\n\nClass 4 <\/strong>is for self-employed people earning profits above the lower profits limit.<\/strong><\/p>\n\n\n\nMost self-employed people pay class 2 and class 4 NICs through self-assessment tax returns.<\/p>\n\n\n\n
As well as different classes, there are a number of different thresholds based on earnings. For the purposes of this article, we\u2019ll focus on the main thresholds at which employed and self-employed individuals start paying NI: the primary threshold for class 1 NICs, the small profits threshold for class 2, and the lower profits limit for class 4.<\/p>\n\n\n\n
What\u2019s NIC changes are going to happen?<\/h2>\n\n\n\n
As announced in the Spring Statement, both the primary threshold and the lower profits limit are rising. It will go from \u00a39,880 to \u00a312,570 as of 6 July 2022. This will bring them in line with the income tax personal allowance.<\/p>\n\n\n\n
Going forward, the NICs and income tax thresholds will remain aligned.<\/p>\n\n\n\n
Aligning these thresholds has been an ambition of the Government\u2019s for a number of years. However, the announcement also came ahead of the new health and social care levy, which was introduced in April 2022.<\/p>\n\n\n\n
This saw all National Insurance rates, as well as dividend tax rates, increase by 1.25 percentage points. The change is expected to raise \u00a336bn over the next three years. It was intended to help pay for reforms to health and social care. It was a controversial decision, increasing taxes for workers when many were already feeling the pressures of rising costs.<\/p>\n\n\n\n
In his Spring Statement speech, Chancellor Rishi Sunak insisted \u201cit is right that the health and care levy stays \u2026 But a long-term funding solution for the NHS and social care is not incompatible with reducing taxes on working families\u201d.<\/p>\n\n\n\n
The \u00a32,700 threshold rise will save employees an average of \u00a3330 in National Insurance each year compared to the previous threshold.<\/p>\n\n\n\n
<\/a>The new thresholds for the self-employed<\/h2>\n\n\n\nWhile employees\u2019 National Insurance is deducted by their employer throughout the year, being self-employed means you pay NICs on an annual basis at the end of the tax year.<\/p>\n\n\n\n
This means things aren\u2019t as straightforward as implementing a new threshold from July. Instead, the lower profits limit for class 4 NICs will rise to an apportioned threshold of \u00a311,908 in 2022\/23 \u2013 allowing for 13 weeks under the previous threshold and 39 weeks at the new threshold.<\/p>\n\n\n\n
<\/a>Taken together with the rate increases, this means self-employed profits between \u00a311,908 and \u00a350,270 will be charged at 10.25% in 2022\/23, and anything over \u00a350,270 will be charged at 3.25%.<\/p>\n\n\n\nFrom April 2023 onwards, the self-employed will be able to earn \u00a312,570 before paying any NICs.<\/p>\n\n\n\n
<\/a>Meanwhile, class 2 NICs liabilities have been reduced to nil on profits between the small profits threshold and the lower profits limit, which will allow individuals to continue to build up National Insurance credits.<\/p>\n\n\n\n<\/a>To receive the credits, you\u2019ll have to submit a tax return \u2013 but if you have no other income that year you won\u2019t have to pay any tax.<\/p>\n\n\n\n<\/a>How will you be affected?<\/h2>\n\n\n\nThe main change you can expect to see is a difference in your take home pay.<\/p>\n\n\n\n
A higher threshold means you\u2019ll be able to earn more before having to pay National Insurance. From July, the Government says around 70% of NICs payers will be paying less, even with the introduction of the health and social care levy.<\/p>\n\n\n\n
The change to class 2 NICs will provide a tax cut for 500,000 self-employed people and is worth up to \u00a3165 per year.<\/p>\n\n\n\n
That said, actual gains for individuals will be different depending on their circumstances.<\/p>\n\n\n\n
For example, if you had annual profits of \u00a320,000 over the 2021\/22 tax year, you would be expected to pay \u00a31,097.48 in Class 2 and 4 NICs. With the threshold increase that would go down to \u00a3994.31, representing a saving of \u00a3103.17.<\/p>\n\n\n\n
If you would like to know more about the NICs threshold changes, talking to us for advice is the best next step.<\/p>\n\n\n\n
Class 1A and 1B NICs <\/strong>are paid directly byemployers on their employees\u2019 expenses or benefits.<\/p>\n\n\n\n Class 2 NICs <\/strong>are paid byself-employed people earning more than the small profits threshold<\/strong>. If you earn less than this, you can choose to pay voluntary contributions to fill in the gaps in your National Insurance record.<\/p>\n\n\n\n Class 3 NICs <\/strong>are voluntary contributions paid to fill gaps in your National Insurance record. You might need to do this if you are unemployed or earn below certain thresholds.<\/p>\n\n\n\n Class 4 <\/strong>is for self-employed people earning profits above the lower profits limit.<\/strong><\/p>\n\n\n\n Most self-employed people pay class 2 and class 4 NICs through self-assessment tax returns.<\/p>\n\n\n\n As well as different classes, there are a number of different thresholds based on earnings. For the purposes of this article, we\u2019ll focus on the main thresholds at which employed and self-employed individuals start paying NI: the primary threshold for class 1 NICs, the small profits threshold for class 2, and the lower profits limit for class 4.<\/p>\n\n\n\n As announced in the Spring Statement, both the primary threshold and the lower profits limit are rising. It will go from \u00a39,880 to \u00a312,570 as of 6 July 2022. This will bring them in line with the income tax personal allowance.<\/p>\n\n\n\n Going forward, the NICs and income tax thresholds will remain aligned.<\/p>\n\n\n\n Aligning these thresholds has been an ambition of the Government\u2019s for a number of years. However, the announcement also came ahead of the new health and social care levy, which was introduced in April 2022.<\/p>\n\n\n\n This saw all National Insurance rates, as well as dividend tax rates, increase by 1.25 percentage points. The change is expected to raise \u00a336bn over the next three years. It was intended to help pay for reforms to health and social care. It was a controversial decision, increasing taxes for workers when many were already feeling the pressures of rising costs.<\/p>\n\n\n\n In his Spring Statement speech, Chancellor Rishi Sunak insisted \u201cit is right that the health and care levy stays \u2026 But a long-term funding solution for the NHS and social care is not incompatible with reducing taxes on working families\u201d.<\/p>\n\n\n\n The \u00a32,700 threshold rise will save employees an average of \u00a3330 in National Insurance each year compared to the previous threshold.<\/p>\n\n\n\n While employees\u2019 National Insurance is deducted by their employer throughout the year, being self-employed means you pay NICs on an annual basis at the end of the tax year.<\/p>\n\n\n\n This means things aren\u2019t as straightforward as implementing a new threshold from July. Instead, the lower profits limit for class 4 NICs will rise to an apportioned threshold of \u00a311,908 in 2022\/23 \u2013 allowing for 13 weeks under the previous threshold and 39 weeks at the new threshold.<\/p>\n\n\n\n <\/a>Taken together with the rate increases, this means self-employed profits between \u00a311,908 and \u00a350,270 will be charged at 10.25% in 2022\/23, and anything over \u00a350,270 will be charged at 3.25%.<\/p>\n\n\n\n From April 2023 onwards, the self-employed will be able to earn \u00a312,570 before paying any NICs.<\/p>\n\n\n\n <\/a>Meanwhile, class 2 NICs liabilities have been reduced to nil on profits between the small profits threshold and the lower profits limit, which will allow individuals to continue to build up National Insurance credits.<\/p>\n\n\n\n <\/a>To receive the credits, you\u2019ll have to submit a tax return \u2013 but if you have no other income that year you won\u2019t have to pay any tax.<\/p>\n\n\n\n The main change you can expect to see is a difference in your take home pay.<\/p>\n\n\n\n A higher threshold means you\u2019ll be able to earn more before having to pay National Insurance. From July, the Government says around 70% of NICs payers will be paying less, even with the introduction of the health and social care levy.<\/p>\n\n\n\n The change to class 2 NICs will provide a tax cut for 500,000 self-employed people and is worth up to \u00a3165 per year.<\/p>\n\n\n\n That said, actual gains for individuals will be different depending on their circumstances.<\/p>\n\n\n\n For example, if you had annual profits of \u00a320,000 over the 2021\/22 tax year, you would be expected to pay \u00a31,097.48 in Class 2 and 4 NICs. With the threshold increase that would go down to \u00a3994.31, representing a saving of \u00a3103.17.<\/p>\n\n\n\n If you would like to know more about the NICs threshold changes, talking to us for advice is the best next step.<\/p>\n\n\n\nWhat\u2019s NIC changes are going to happen?<\/h2>\n\n\n\n
<\/a>The new thresholds for the self-employed<\/h2>\n\n\n\n
<\/a>How will you be affected?<\/h2>\n\n\n\n