NI to increase by 1.25% from April to fund the Health and Care Levy – what you can do about it
The Government is set to increase National Insurance Contributions (NICs) by 1.25% from April to fund the Health and Social Care Levy, and while this may be a laudable aim, it is going to hit all of us in the pocket.
Costly increase when finances are being squeezed
The NICs hike means that someone earning £30,000 a year will pay an additional £255 into Government coffers – equivalent to 10% more than they are currently paying – while someone earning £50,000 will pay an extra £505. The lowest earners are set to be hit hardest because of the point at which NICs is applied on lower wages.
Despite numerous calls to delay this rise, especially as the cost of living is increasing at rates not seen in nearly 30 years – the Consumer Prices Index rose to 5.5% in January – the Government has insisted it is ploughing ahead with the change.
What can you do?
Unless we see a change of heart in the Spring Statement, this further reach into the pocket of employers and employees is going to sting. But there are some things you can do. For example, as the NICs are paid on your salary, if your employer has – or can offer – the option to do salary sacrifice for another benefit, you may be able to reduce the impact this has.
Salary sacrifice schemes involve your employer cutting your salary in return for paying the equivalent amount into benefits which have both tax and NICs benefits. These can include pensions, pension advice, car leasing schemes, and even cycle to work schemes.
While you get less money in your hand at the end of the month, overall you will be better off because you are getting benefits that make up that value difference, and you will pay less tax and NICs.
Dealing with a benefit in kind
For example, if you leased an electric car through your employer, the payments can be made direct from your gross salary, which means your salary is reduced, cutting the cost of the 1.25% rise. The other benefit is that there will be less income tax to pay too, while you benefit from the use of the car.
There is, of course, the benefit in kind cost to consider. But for electric cars this is only 2% from April 2022, compared to as much as 25% for even a relatively low-emission non-electric car, according to calculations from Loveelectric.cars. So, it might make financial sense to explore this with your employer or employees.
While electric cars can be expensive, the salary sacrifice scheme can make them more appealing. For example, a higher-rate taxpayer earning £60,000 a year chooses a Tesla Model 3 with a lease term of 48 months and annual agreed mileage of 5,000 miles.
Typically, the lease price would be around £524 per month, but combining the price of a lease with salary sacrifice could reduce this to £267 per month, making it much more affordable.
Company owners or directors who may not be primarily paid via a salary can use a business contract hire option which allows them to deduct the full cost of a rental from profits and then recover half of the VAT paid if it is used for personal use, or 100% if it is solely used for business purposes.
If you are interested in taking advantage of salary sacrifice or discussing other ways you can mitigate the impact of the 1.25% rise in NICs, please get in touch with us.