Navigating National Insurance (NI) categories is crucial for employers to ensure accurate payroll processing. Changes were made to NI thresholds, affecting both employees and business owners/managers on 6 July 2022. In light of the Autumn Statement (22 November 2023) NI thresholds have remained the same, however NI contributions for employees have changed in a decrease from 12% to 10%.
Autumn Statement 2023*
From 6 April 2023 to 5 March 2024 the amount you can earn before you started paying NI remains as:
- £242 per week
- £1,048 per month
- £12,570 per year
Announcements in the Autumn Statement by the Chancellor have resulted in another mid-tax year change to National Insurance contributions. Whilst the NIC thresholds appear to remain unchanged, there will be a cut in employee NIC, from 12% to 10%, from 6 January 2024.
What does this mean for employees?
Here’s an example:
An employee with an NIC category of A who has NICable earnings of £2,500 per month can expect to see a reduction in the amount of NIC that they pay by almost £30 per month from 6 January.
We await further guidance and will update accordingly as to the calculation of directors NIC for the 2023/24 tax year. A hybrid percentage is expected.
If an annual payroll has already been processed for 2023/24 then it’s highly likely that it’ll need to be amended and reprocessed due to the Chancellors announcement.
*Updated November 22 2023 in response to the Autumn Statement
It’s vital to keep up with these updates to avoid penalties and errors. NI categories encompass various classifications based on factors such as age or coming to work in the UK from another country, and selecting the right one is crucial.
Regular payroll reviews are necessary to identify any changes that require an adjustment to the NI category. Employers should also be aware of special considerations for employees from EU countries and other nations with social security agreements.
Previous NI thresholds (6 July 2022)
Previously, from 6 April to 5 July 2022 the amount you could earn before you started paying NI was:
- £190 per week
- £823 per month
- £9,880 per year
Under the new changes from 6 July 2022, the NI threshold is:
- £242 per week
- £1,048 per month
- £12,570 per year
As directors NI is calculated annually, their new threshold is:
- £229 per week
- £11,908 per year
It is important to ensure that your employees’ NI categories are up to date. The NI category determines how much NI the employee and employer need to contribute to each payroll.
A – Employees that are aged 21 to state pension age, and aren’t in B, C, H, J, M, V, X and Z or working in a Freeport.
B – Married women and widows entitled to pay reduced National Insurance. (This stopped in 1977, but if the employee opted in before this and has not stopped this at any point, they may still be able to pay the lower rate).
C – Employees over the State Pension Age.
H – Apprentices under 25.
J – Employees who can defer National Insurance because they’re already paying it in another job.
M – Employees under 21.
V – Employees who are working in their first job since leaving the armed forces (veterans).
X – Employees who do not have to pay NI, for example they’re under 16.
Z – Employees under 21 who can defer National Insurance because they’re already paying it in another job.
These apply to employees who work a Freeport.
F – All employees working in a Freeport, apart from those in I, L or S.
I – Married women and widows who work in a Freeport and are entitled to pay reduced NI. (This stopped in 1977, but if the employee opted in before this they may still be able to pay the lower rate).
L – Employees who work in a Freeport and can defer National Insurance because they’re already paying it in another job.
S – Employees who work in a Freeport and are over the State Pension age.
The golden rules for NI categories
If an incorrect NI category is selected, it can be difficult to correct the mistake at a later date. You may be charged a penalty for a mistake if you did not take ‘reasonable care’. To ensure you choose the right category we have outlined our ‘golden rules’ below.
- The NI letter is based on their information on the pay date.
- Ensure you have proof of age to make certain you are applying the correct category based on age.
- Ensure anyone wanting to defer their NI has applied to do this with HMRC and has a deferment letter confirming they are allowed to do so.
- Check each time you run the payroll that nothing has altered meaning an employee needs to have their NI category changed. Examples where you may need to change the NI category include, reaching SPA, turning 16 or 21, or becoming an apprentice.
- Check with employees from social security institutions in the EU, Iceland, Lichtenstein, Norway, or Switzerland whether the employee has a Portable Document A1 (PDA1) form that exempts them from paying NI in the UK during the period covered by the PDA1 form. It is important to keep a log of when the PDA1 form expires and ensure a new one is received or NI category is amended.
- For employees from a country outside of the EU, Iceland, Liechtenstein, Norway, and Switzerland where the UK has a social security agreement, a reciprocal agreement, a Double Contribution Conventions, or a certificate issued by another country which states they are subject to that country’s social security legislation, then the certificate would be accepted as proof that the employee does not need to pay NI for the period covered by that certificate. It is important to keep a log of when the certificate expires and ensure a new one is received or NI category is amended.
- Employees coming to work in the UK from any other country – the employer and these employees are exempt from paying UK NI contributions for the first 52 weeks of their employment here provided that:
• they are not ordinarily resident in the UK
• they normally work outside the UK for a foreign employer
• they are sent to work in the UK for a time by that foreign employer
• when in the UK they continue to work for that employer
If you would like support in further understanding what the changes NI contributions mean for your or support regarding NI categories, please contact a member of the team using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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