Telling the truth about SME life today

National Insurance Increase Reversal – What It Means for Businesses

national insurance increase

The controversial 1.25% planned increase to National Insurance Contributions (NICs) was reversed on November 6, 2022.

The reversal applies to Class 1, Class 4, and secondary Class 1, 1A and 1B NICs and will result in a reduction of the main and additional rates of Class 1 employee NICs by 1.25 %, as well as a reduction in Class 1 employer NICs.

This decision will bring great relief to both small businesses and employees who have been struggling with the financial burden of the increase but they will need to ensure that updates are made to payroll processes to reflect the adjusted National Insurance rates.

Overview Of The Reversal

The reversal of the NICs increase is a significant development that will have far-reaching implications for the UK economy. Although the government has not provided a detailed explanation for the reversal, it is clear that the decision has been influenced by the economic impact of the pandemic and the need to support struggling businesses and workers.

Main details:

  • The reversal of the 1.25% National Insurance Contributions increase, which applies to Class 1, Class 4, and secondary Class 1, 1A and 1B NICs, will take effect from 6 November 2022, reducing the burden and cost of employment for small businesses, as stated in the Government policy paper.
  • Additionally, the main and additional rates of Class 1 employee NICs will be reduced by 1.25 percentage points to 12% and 2%, while Class 1 employer NICs will also be reduced by 1.25 percentage points to 13.8%.

What Does This Mean For Employers & Employees?

What Does This Mean For Employers & Employees

This change is expected to benefit small businesses and employees, as employers will only pay on earnings above the Secondary Threshold.

The impact on employees is that the majority of them should receive the NI cut directly via their November payroll, as payroll software will adjust the National Insurance levels automatically and apply these in November.

Employers will need to update their payroll processes and inform payroll teams to remove this item from payslips from 6 November.

It is important to note that the reversal only applies to NICs, and the equivalent dividends tax increase by 1.25% will remain in place.

The Government policy paper makes clear that the reversal will only apply prospectively, and the Government has set out rates and thresholds for employers, providing information about how much employers should deduct from employees’ pay.

Impact on Employers

  • Reversal of 1.25% NICs increase provides financial benefits to employers.
  • Reduction in Class 1 employer NICs by 1.25 percentage points to 13.8%.
  • Small businesses can employ up to four staff on the living wage without paying employer NICs.
  • Employers need to update payroll processes to reflect the adjusted National Insurance rates.
  • Payroll teams should remove the 1.25% NICs increase from payslips starting from 6 November.
  • Overall reduction in the cost of employment for businesses, especially small businesses.


The immediate relief for businesses resulting from the reversal of the NI increase is significant. Many businesses were concerned about the additional financial burden the increase would impose, particularly on employers and the self-employed. The reversal offers respite by alleviating these anticipated costs and providing breathing room for businesses to recover and grow.

Employers will now be able to employ up to four staff members on a living wage without incurring any employer NICs. This exemption provides small businesses with greater flexibility in managing their workforce and encourages employment growth.

The reversal of the NICs increase does necessitate changes to employer obligations.

  • It is crucial for payroll teams to be informed promptly and instructed to remove the 1.25% increase from NICs on payslips starting from 6 November.
  • Employers must ensure that their payroll processes are updated to automatically adjust National Insurance levels and reflect the revised rates in November.
  • This adjustment guarantees that the correct amount is deducted from employees’ pay and aligns with the government’s stipulated rates and thresholds.

How Employers Can Assist Employees with Refunds

How Employers Can Assist Employees with Refunds

As an employer, it’s important to support your employees who may be entitled to a refund of the National Insurance Contributions (NICs) increase.

Here’s what you need to know to assist them:

  1. Inform Employees: Notify your employees about the process for refunding the excess NICs they may have paid. Make sure they are aware of their entitlement and provide them with the necessary information to proceed.
  2. Refund Responsibility: As an employer, you are responsible for refunding the overpaid contributions to your employees. Ensure you have a system in place to handle refund requests promptly and efficiently.
  3. HM Revenue and Customs (HMRC) Application: In some cases, employees may need to apply to HMRC directly for a refund. Advise your employees about this possibility and guide them on how to navigate the HMRC refund application process.
  4. Document Preparation: Encourage employees to gather the required documents when making a refund claim. These include their National Insurance number, payslips, and P60 forms. Assisting them in collecting and organizing these records will streamline the refund application process.
  5. Patience and Communication: Inform employees that the refund process may take several weeks to complete. Encourage patience and maintain open lines of communication to address any questions or concerns they may have throughout the process.
  6. HMRC Support: Emphasize that employees can reach out to HMRC directly for assistance with any refund-related inquiries. Provide them with the necessary contact information and encourage them to seek guidance as needed.

By proactively supporting your employees with refund procedures, you can ensure they receive the reimbursements they are entitled to. Clear communication, guidance, and timely processing of refund requests will foster a positive employee experience and demonstrate your commitment to their well-being.

Other Considerations

Budgetary Considerations and Alternatives

While the NI increase reversal provides immediate relief, it also raises questions about the impact on the government’s budget and the funding of public services. The government will need to explore alternative measures to compensate for the lost revenue and ensure the sustainable funding of critical services. Balancing fiscal responsibility with the needs of businesses and society will be a challenge that requires careful consideration and decision-making.

Long-Term Stability

Stable and predictable tax policies are crucial for businesses to plan effectively and make informed financial decisions. The NI increase reversal brings short-term stability, but businesses must remain vigilant and adaptable to potential future revisions or alternative tax measures.

Staying informed about the evolving tax landscape and engaging in dialogue with policymakers will be essential for businesses to navigate potential changes effectively.

Potential Future Revisions

It is important to acknowledge that the reversal of the NI increase does not eliminate the possibility of future revisions to National Insurance contributions or alternative tax measures. The government may need to reassess its approach to revenue generation in the future. Businesses should remain attentive and agile, prepared to adapt to potential changes that may impact their operations and financial planning.

Consultation and Dialogue

Ongoing consultation and dialogue between the government and the business community are crucial to ensure that tax policies align with the needs and challenges faced by businesses. By actively participating in discussions, businesses can contribute their perspectives and help shape tax policies that support economic growth, innovation, and sustainability.

Summary

If you are an employer in the United Kingdom, the recent reversal of the planned National Insurance (NI) increase holds significant implications for your business. This article explores how the reversal impacts you, including the reduced burden and adjusted obligations.

Whilst you can expect financial benefits, particularly if you are a small business, as the cost of employment decreases, it is essential for you to update your payroll processes to reflect the adjusted National Insurance rates.

Staying informed, adapting to potential changes, and engaging in ongoing dialogue are crucial to navigating the evolving landscape of NI contributions effectively. By doing so, businesses can fully capitalize on the positive impact of this policy change and navigate the evolving landscape of employer contributions to the national insurance system.

FAQs

What is the National Insurance increase reversal?

The National Insurance Increase reversal refers to the UK Government’s decision to reverse the 1.25% increase in National Insurance Contributions (NICs) that was implemented in April 2022.

When will the reversal come into effect?

The reversal of the National Insurance increase will come into effect from 6 November 2022.

Which National Insurance contributions does the reversal apply to?

The reversal applies to Class 1 contributions (paid by employees), Class 4 contributions (paid by self-employed individuals), and secondary Class 1, 1A, and 1B contributions (paid by employers).

How do the NICs rates change from 6 November?

From 6 November 2022, the main and additional rates of Class 1 employee NICs will be reduced by 1.25 percentage points to 12% and 2% respectively. Class 1 employer NICs will also be reduced by 1.25 percentage points to 13.8%.

How will employees receive the National Insurance cut?

In most cases, employees should receive the National Insurance cut directly through their November payroll. However, if payroll software updates cannot be applied before 6 November 2022, employees will receive the benefit retrospectively once the updates have been implemented.

What if the new rates are not applied to employees’ pay from 6 November?

In cases where the new reduced rates are not applied to employees’ pay from 6 November 2022, individuals should contact their employer for refunds. If the employer is unable to issue a refund retrospectively, individuals may need to apply to HM Revenue and Customs (HMRC) for a refund.

What action do employers need to take with their payroll?

Employers should inform their payroll teams to remove the 1.25% NICs increase from payslips starting from 6 November. Most payroll software will automatically adjust the National Insurance levels and apply the new rates.

Does the reversal affect the Employment Allowance?

No, the Employment Allowance, which removes the first £5,000 off every small employer’s NICs bill, will be retained at the same level. This means that small businesses can employ four staff on a living wage without paying any employer NICs.

Are there any other taxes or contributions that will be affected by this reversal?

The reversal of the National Insurance increase only affects NICs and not other taxes or contributions. It is expected to benefit small businesses and employees while reducing the burden and cost of employment. Its impact on the economy and political implications remain to be seen.

Are there any potential drawbacks or criticisms of the National Insurance increase reversal?

Potential criticisms of the National Insurance Contributions (NICs) increase reversal include its impact on the economy, as it may reduce revenue for the government and limit funding for public services. However, its positive effect on small businesses and employees must be addressed.

Please note: The information provided in these FAQs is based on the available details at the time of writing and may be subject to updates or changes. It is recommended to consult official government sources or seek professional advice for the most accurate and up-to-date information regarding the National Insurance increase reversal.

Trending

Topic

Related Stories

More From

Most Read

Trending

If you enjoyed this article,
why not join our newsletter?

We promise only quality content, tailored to suit what our readers like to see!