What do the coming National Insurance rises mean for those who are self employed and operate under an umbrella company?
Despite coming in for wide criticism at a time when the Tories can ill afford more attacks, the Chancellor is committed to the tax hike he laid out in the last Budget, “no ifs or buts”. It means that from April 2022 both employers’ and employees’ National Insurance rates are set to increase by 1.25% despite the increased inflation, increased cost of living and fast-rising fuel prices having a crippling effect on peoples’ pockets.
Following the introduction of the Off-Payroll Working Rules [IR35] last year, many workers are now operating through umbrella companies and this increase will have an impact on their earnings as Crawford Temple, CEO of Professional Passport, the UK’s largest independent assessor of payment intermediary compliance explains…..
The rate paid to the umbrella company is the umbrella company’s income. From this, the umbrella deducts their employment costs which includes employers’ National Insurance. With this rising from 13.8% to 15.05% from April, this will have an impact on the amount that is available for payment to the worker. On top of this, the worker will also have an additional 1.25% charge on their employee National Insurance. In simple terms, they will face a 2.5% additional charge, which may vary by earnings and is not meant to represent an exact amount.
Firstly, if you were unaware of this and your contract extends beyond April of this year you should ask your umbrella for an updated pay illustration, taking the new rates into account. You will at least know the impact and can prepare appropriately for this. You could also approach the agency to see if any rate increase is available due to the increased levels of National Insurance.
If you are currently negotiating a new contract that will extend beyond April it is definitely worth asking the agency if there will be a rate increase in April to counter the increased National Insurance charges. Once again ask your umbrella for an income calculation on both the current rates and the new rates so you can fully understand the impact. This will also help you to be precise in any rate negotiations with your agency or end client.
Meanwhile, for those contractors who are making salary sacrifice pension contributions, these will become even more efficient as the National Insurance increase is not applied to these.
*Crawford Temple is CEO and founder of Professional Passport, the UK’s largest independent assessor of payment intermediary compliance. You can find many useful articles and videos on the Professional Passport website in the Hot Topics section.