Your handy glossary of terms for National Insurance Contributions (NICs)
Dealing with National Insurance for your employees can be confusing with so many terms and similar phrases,
so we’ve created a simple Glossary of terms for NI Contributions to help you understand what they mean.
| Term | Description |
| Class 1 NICs
|
Paid by and on behalf of those in employment. |
| Primary Class 1 NICs
|
These NICs are deducted from the employee’s earnings. |
| Secondary Class 1 NICs | These NICs are paid by the employer on top of the employee’s salary. |
| Class 2, 3 and 4
|
Apply to self-employed or the unemployed. |
| Lower earnings limit | For NICs purposes, this is the level of earnings above which the year counts towards your state pension. If you earn at or above this limit you have that year on record in the final calculation of how much state pension you receive.
For tax year 2022/23 the lower earnings limit is £6,396 per annum. Crucially, this is not the level above which NICs must be made by the employee, that is called the Primary Threshold (explained below). |
| Primary Threshold
|
Following the recent Spring 2022 statement the Primary Threshold will be £9,880 per annum from 6 April 2022 to 5 July 22. It will then increase to £12,750 (the equivalent of the personal allowance) for the remaining nine months of the tax year (see table below).
There are weekly and monthly limits which apply depending on whether salary is paid weekly or monthly. The reason for this is because the calculation for NICs is based on when it is paid rather than on an annual basis. |
| Secondary Threshold
|
The Secondary Threshold is the level above which the employer must make contributions and is slightly lower than the Primary Threshold. For 2022/23 it is £9,100. |
What to look for in the new tax year
Given the Primary and Secondary NIC rate increases this new tax year from 6 April 22 and the rise in July 2022, it is important to make sure that you get them paid promptly and correctly. See the table below for the changes.
| Employee and employer rates | Employee
(Class 1 primary) |
Employer
(Class 1 secondary) |
||
| For tax year 22/23 | Annual Threshold | % NICs | Annual Threshold | % NICs |
| Below | £9,880(1) | Nil | £9,100 | Nil |
| Above | £9,880(1) | 13.25% | £9,100 | 15.05% |
| Below | £12,570(2) | Nil | £9,100 | Nil |
| Above | £12,570(2) | 13.25% | £9,100 | 15.05% |
(1) Until 5 July 2022, (2) From 6 July 2022
If you are an owner-managed business also keep an eye on the changes to rate of tax on dividends for this new tax year and how you can mitigate them. You can find out more details on this subject in a previous post https://teamsas.co.uk/tax-rises-on-dividends-from-april-2022/
Use of this guide is for reference only. Specialist Accounting Solutions Ltd accepts no liability for any errors therein or any losses or damages arising from it.
Link to the gov.uk information about rates and thresholds:
https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2022-to-2023
If you would like to discuss how we can support your business with our outsourced accounting services and virtual CFO services, please get in touch.
Use of this information is for reference only. Specialist Accounting Solutions Ltd accepts no liability for any errors therein or any losses or damages arising from it.
