From the 6th April 2022, National Insurance for employees and employers will increase by 1.25% to help fund health and social care. Continue reading as our article outlines the new Health and Social Care Levy and how it will impact contractors working via an umbrella company.
What is the Health and Social Care Levy?
The measure was announced on the 7th September 2021 to provide a UK-wide long-term approach to funding health and social care in the UK and to increase funds for the National Health Service (NHS). From April 2022, there will be a temporary 1.25% increase to both the main and additional rates of Class 1, Class1A, Class1B and Class 4 National Insurance Contributions (NICs) for the 2022-23 tax year.
From April 2023 onwards, the NICs will decrease to the 2021-22 tax year levels and be replaced by a new 1.25% Health and Social Care Levy. Individuals above state pension age will not be affected by the temporary increase to NICs for the 2022-23 tax year but will be liable to pay the levy from April 2023.
What does the tax increase mean for umbrella company employees?
Right now, most employees only have to start paying Class 1 NICs once they earn above the ‘primary threshold’ of £9,568 a year, rising to £9,880 a year for the 2022-23 tax year.
The National Insurance (NI) rate above this primary threshold will go up from 12% to 13.25%, while NI charged on earnings over £50,0270 will rise from 2% to 3.5%. The table below shows how much more you will pay in NI from April 2022:
| Annual salary | Current annual payment | Annual payment from April 2022 |
| £20,000 | £1,251 | +£89 |
| £30,000 | £2,451 | +£214 |
| £40,000 | £3,651 | +£339 |
| £50,000 | £4,851 | +£464 |
| £60,000 | £5,078 | +£589 |
| £70,000 | £5,278 | +£714 |
| £80,000 | £5,478 | +£839 |
| £90,000 | £5,678 | +£964 |
| £100,000 | £5,878 | +£1,089 |
For contractors using umbrella companies, you must make your assignment rate will increase from April 2022 to account for the additional NIC costs to ensure your take home pay is not adversely affected. Bear in mind that the assignment rate paid to the umbrella company will cover your agreed day rate, plus the employment costs (Employer’s NI, Apprenticeship Levy, employer workplace pension contributions and holiday pay) – including the inflated Employer NIC and the umbrella’s margin. Therefore, unless the assignment rate has been increased, you will inevitably feel the effects of both the increases to NI.
What should you do to ensure your take home pay is not negatively affected?
If your contract extends beyond April of this year, you should ask your umbrella company to provide a take home pay illustration, including the 1.25% tax increase. This will give you a good idea of how the NI increases will impact you and your earnings. You should also approach your recruitment agency or end client to see if any rate increases are available due to the increased levels of NICs.
If you are in the process of negotiating a new contract that will extend beyond April or starts after April, ask the agency or end client if there will be a rate increase to counter the increased NI rates or if a rate increase is already included.
Check out our top 10 umbrella companies
With over 500 umbrella companies in the UK, how do you know which are compliant and best for your circumstances? At Umbrella Company Calculator, we have worked hard to collate a list of top 10 umbrella companies, which we think you’ll find helpful!
Every umbrella company listed in our top 10 is either accredited by the Freelancer & Contractor Services Association (FCSA) or Professional Passport – which means their process adheres to the highest compliance standards and HMRC legislation.
