From 6 April 2022, the Government will be introducing a temporary increase to National Insurance contributions (NIC). This 1.25% increase means:
From 6 April 2023 this increase will be replaced by a new tax named the Health and Social Care Levy which will apply to both employers and employees, including those above the state pension age, at a rate of 1.25% each. The levy will have the same thresholds and requirements as the qualifying NIC and will appear as a separate line on their employees’ payslip.
By adopting a salary exchange arrangement, employers and employees will pay their pension contributions before NIC and Income Tax. This means that they will pay a reduced NIC which includes the upcoming increase.
The amount they can save will depend on the size of their workplace pension scheme, and the value of salary exchanged.
The examples below highlight how much the increase will be for employers and how introducing salary exchange can help them save.
|Number of employees||50||100||500|
|Total yearly salary payment||£1,500,000||£3,000,000||£15,000,000|
|Total employer NIC
|Total employer NIC
|Total increase to employer
|Total salary exchanged
by employees (5%)
|Employer NIC rate (2022/23)||x 15.05%|
*Figures are based on an average salary of £30,000 per employee, each exchanging 5% of their salary for a pension contribution. Employer yearly savings are the NIC that would be paid if salary exchange wasn’t in place.
Let’s see how this works for your client’s employees. We’ve based this example on an employee who lives in England, earning £30,000 a year, has a personal allowance of £12,570 and is paying a 5% pension contribution. Their employer is not reinvesting the NIC savings into the workplace pension scheme.
|Monthly employee salary|
|Tax year 2021/22||Tax year 2022/23||Tax year 2022/23(using salary exchange)|
|National Insurance increase||N/A||£17.88||£1.32|
|Take home pay||£1,905.18||£1,887.30||£1,903.86|
By contributing to their pension through salary exchange, they can mitigate most of the increase and reduce the cost to them to £1.32 a month. (£1905.18 - £1903.86). Remember any tax savings will depend on individual circumstances and could change in the future.
To find out more about salary exchange speak to your usual Royal London contact or visit adviser.royallondon.com/salary-exchange