National Insurance threshold increase receives Royal Assent

The National Insurance Contributions (Increase of Thresholds) Act 2022 received Royal Assent on 31 March 2022.

For most, this is welcomed news given the increase in National Insurance contributions announced last year.

The Act realises the government’s policy announced at Spring Statement 2022 of aligning the NICs thresholds with the income tax personal allowance (£12,570).

The weekly primary threshold for Class 1 contributions (employees) is increased to £242 (up from £190) with effect from 6 July 2022. Section 1 of the Act sets out the monthly and annual equivalents, and confirms that the increases ‘do not affect any liability to primary Class 1 contributions for any tax week commencing before that date’.

The lower profits limit (LPL) for Class 4 contributions (self employed) is increased to £11,908 (up from £9,880) with effect for the tax year 2022–23. This mirrors the annualised effect of the increase in the annual Class 1 primary threshold to £12,570 with effect from 6 July (ie taking effect part-way through the 2022–23 tax year). Section 2 confirms that, with effect from 6 April 2023, the LPL will rise to £12,570 – aligning with the income tax personal allowance.

Section 3 sets out two regulation-making powers in relation to Class 2 contributions. The Treasury is required to align the point at which Class 2 contributions become payable with the LPL (mentioned above), meaning that individuals whose profits fall below the LPL will not pay Class 2 contributions, but can opt to pay voluntarily.

This will go someway towards combating the increase in National Insurance rates from 6 April 2022 for individuals, businesses and employers. How far will need assessing on a case-by-case basis. For individuals, those earning over £35,000 per annum are likely to be worse off still.