Changes in National Insurance – how will this affect contractors?


Changes in National Insurance – how will this affect contractors?

As many of you know, the Government is implementing a Health and Social Security Levy of 1.25% for both employers and employees. This won’t officially be in place until April 2023, so to ensure the Government gets their take in the meantime, this will be an increase in Employer’s and Employee’s National Insurance contributions for the next 12 months.

In simplistic terms, this is how the changes may affect you…

Limited Company Contractors – outside of IR35

If you are a limited company contractor, legitimately working outside IR35, these changes will affect how you are paid via your limited company. For any earnings to which National Insurance applies, you will see the 1.25% increase apply.

Limited Company Contractors – inside IR35

Knows as a deemed employee, you are paid via our ‘deemed payroll’. As the Employer’s National Insurance that would usually be paid by your limited company is now paid by the agency, your assignment rate has to be changed to reflect this – ie a daily rate of £500 would be adjusted to £430 (the difference being the Employer’s NI after the weekly allowance is taken into account). You would then have PAYE deducted along with the new Employee’s NI rate. The money you then receive is yours to take out of your company with no other liabilities (ie corp tax, dividend tax etc)

Umbrella Company Contractors

As with the above example, the umbrella would be paid the £500 assignment rate. From this they would deduct the Employer’s NI (same as above but rather than the assignment rate being reduced by the NI contribution, it is deducted from the payment made to the umbrella, but the end result is essentially the same). They would then also deduct Employee’s NI and PAYE to make the net payment to you as an employee.

For more information on the different payment methods, we would recommend you read