The Chancellor this week announced another change to National Insurance arrangements, this time an increase in threshold. Previously, the government decided that National Insurance contributions would go up from April 2022, to a rate of 13.25% for lower-rate taxpayers, 3.25% for higher-rate taxpayers and 15.05% for businesses. This change would have meant, in some cases, hundreds of pounds more in NI costs for each employee. Using salary sacrifice to mitigate the increase became a no-brainer solution: by switching their pension arrangements, companies could easily save themselves thousands and help lower the cost for employees, too. With the Chancellor’s Spring Statement unveiling a slight change to how NI is levied, many people are asking: is switching to salary sacrifice still worth it? The short answer is yes.
Use our calculator below to find out how your NI will change for 2022-23.
What did the Chancellor announce in the Spring Statement 2022?
The Chancellor’s Spring Statement set out a range of measures, many in response to the rise in cost of living we are currently experiencing. When it comes to National Insurance, the percentage increase will still go ahead. However, the lower threshold for payment (of Class 1 and 4 NICs) will rise to £12,570 from July.
This means that from July:
- You will only pay National Insurance when you earn more than £12,570 in a year
- You will pay 13.25% of your salary between £12,570 (lower threshold) and the upper threshold (likely to be around £50,270)
- For salary above the upper threshold, you will pay 3.25%
This will mean that many people will pay less NI, particularly those on low-medium salaries. However, some people on higher salaries may still end up paying more.
So, is it worth switching to a salary sacrifice pension?
On a personal and business level, the answer is still yes. Switching the pension arrangement for your business will still save your company money on National Insurance payments — money you can still use to pay for valuable benefits or rewards for your team, put into their pension, or use to drive business development. And importantly, Sunak’s announcement makes no difference to the level of savings you and your team can generate from salary sacrifice – up to £1300 per employee per year.
And, on a personal level, salary sacrifice will still help you cut NI costs. The increased contribution levels are still coming in, and the threshold won’t be raised until July, meaning there will be three months of increased costs with no mitigation.
After July, having a salary sacrifice pension arrangement could see you taking more money home!
Example:
Michael earns £35,000 a year. He is set to pay £26 extra each month in NI after the increase in April. Over April, May and June he therefore pays an extra £78 on top of his normal NI contribution.
By opting into salary sacrifice, he can cut £78 to just £20 increase over the 3 months.
From July onwards, the rising threshold means that without salary sacrifice, he’s actually £42 better off per year due to the change in NI contributions.
With salary sacrifice, he can add another £232 to that total.
Over the whole year, even with the increased tax in the first 3 months, Michael takes home an extra £185 from being in salary sacrifice. This will rise to £274 from the year after.
We’ve got a handy calculator you can use to find out how much more or less you’ll be paying in 2022-23.
Want to give your employees a pay rise? Or get one for yourself?
It’s quick and easy to set up a salary sacrifice pension arrangement with Maji. If you think your business could benefit, find out more and get in touch to book a demo. You may also want to attend our free LinkedIn Live event on April 12th; for more details, go here.
If you’d like your employer to set up salary sacrifice for you, drop us their name through the pink ‘chat’ button on our website. We’d be more than happy to talk them through the process and how Maji could make it super simple for them to save money! And you’ll also get a sweet £100 referral prize in addition to your extra take-home pay from salary sacrifice!
