Preparing for the 3rd National Insurance payroll change!

With the resignation of Boris Johnson and the ongoing election of a new Prime Minister with announcements to be made Monday 5th September 2022, will payroll see it’s third change to National Insurance in one year?

With candidates vying for election, promises of changes are frequent and sometimes a little reactionary. With the cost of living crisis, and especially fears on rising heating and electric bills, ways of assisting or masking the effects are almost announced daily.

One of the hustings announcements by Liz Truss, if she were to be elected, is the reversing of the Health and Social Care Levy increases to National Insurance!

On 6th April 2022, contribution levels increased by 1.25 percentage points for both employees and employers, a significant rise in contributions of +10.4% for employees and 9.06% for employers. This impacted all variants of NI and also dividend payments.

With the developing Cost of Living crisis and to dampen some of the effects of the rise, Rishi Sunak announced in late March 2022 a revision to the starting point for employee contributions, the primary threshold, to be introduced from 6th July 2022.

So what could a reversal of the increase mean, and when would it apply? How far back would it be for? And what of the new Health and Social Care Levy that was to be introduced from 6th April 2023?

The indication from the hustings would imply that the changes are immediate. However, the election is not concluded and no official announcement has yet been made. The government policy areas must be pulling their hair out considering all the potential options and impacts. Contingency planners are at a premium!

It may be viewed that the new H&SCL may be cancelled and is dead. Detail of the changes for April 2023 are still awaited by payroll software developers, maybe those changes will no longer exist!

If a change of contribution rate is announced, then will that be immediate or for a future point in time. Whatever is announced will require software and configuration change. These will need to be tested and various scenarios explored.

Payroll operates in a virtual time world where activity is undertaken in cycles with cutoffs impacting past, current and future. Payroll for post 5th September may have already have finished and be queued for payment!

So any changes if announced may be from a future, as yet to be confirmed, change point. The last change applied from 6th July 2022 which just coincidently happened to be both the start of a tax month and a tax week.

Will the changes be retrospective if announced? So will the software and payroll profession need to go back in time and recalculate all prior contributions, applying any adjustment values to the next regular payment and FPS submission!

What about leavers, starters, directors, Class 1A and Class 1B calculations. What about the impacts on salary sacrifice calculations which have already been based on higher NI contribution values to effect savings or increased pension contributions?

What about preparations for April 2023? It’s getting close to that time of year where software developers need to prepare for the next tax year.

Once the new prime minister is confirmed on Monday 5th September 2022, then expect a series of announcements confirming any further changes to National Insurance and Income Tax.

The payroll industry is looking to be in for a bumpy ride over the coming months? Are we prepared?

Maybe we can now stop putting the political message on the employee payslip!

PAYadvice.UK 31/8/2022

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