Some of the latest changes to national insurance contributions (NICs) started from 6 July 2022, causing complications for self-employed people and directors. Normally rates and thresholds are set for the whole tax year.
The main NIC rate for employees is 13.25% for 2022/23, on earnings above the primary threshold and up to £50,270 a year. It is the primary threshold that changed from 6 July 2022, from £190pw for the period 6 April to 5 July 2022 up to £242 pw from 6 July 2022 to 5 April 2023. The change brings the threshold into line with the £12,570 income tax personal allowance.
Company directors generally use an annual or quarterly earnings period. Those on an
annual earnings period will pay NICs on earnings above £11,908. Those on a quarterly
earnings period will use the £190pw threshold for the first three months of 2022/23 and the £242pw threshold for the rest of the year.
Self-employed and small profits
The self-employed class 4 NIC rate of 10.25% is payable on earnings above the £11,908 lower profits limit, up to £50,270. Earnings above this are charged at 3.25%. The class 2 small profits threshold remains at £6,725 for 2022/23 but contributions – £3.15pw or £163.80py – are not payable until profits reach £11,908. Where annual profits are between £6,725 and £11,908 the individual will now be able to build up a contributions credit without paying class 2 NICs. To benefit, the person will need to submit a tax return showing profits from self-employment of at least £6,725. Those with profits below £6,725, or a loss, are not entitled to the class 2 NI credit, but can, as before, make voluntary class 2 payments to maintain a contribution record. You currently need 35 qualifying years to qualify for a full state pension and it may be worth checking your contribution record.