Every contractor operating in the UK will want to know how much they will contribute in National Insurance each month. After all, National Insurance hikes that were introduced in 2022 have since been reversed, so many may be wondering where they stand when it comes to National Insurance.
Umbrella Search has put together this comprehensive guide to help contractors find out more about National Insurance rates in the 2023-4 tax year and how much they can expect to pay.
What were the changes to National Insurance in the 2022-3 tax year?
From April 2022, National Insurance contribution rates increased by 1.25 percentage points on earnings between £9,880 and £50,270 and 3.25% on earnings over £50,270. Then, the National Insurance threshold rose from £9,880 to £12,570 on the 6th July 2022.
This increase applied to class 1 National Insurance contributions that were paid by employees.
The additional amount was collected by HMRC and was paid either through the pay-as-you-earn (PAYE) system for employees, including umbrella company contractors, or self-assessment for self-employed workers, including limited company contractors.
This meant that in the 2022-3 tax year, employees who paid class 1 National Insurance contributions paid 13.25% rather than the 12% prior to the changes.
Likewise, employer contributions also rose at the same time, increasing from the previous rate of 13.8% to 15.05%.
National Insurance in 2023
Although there were a lot of changes in the 2022-3 tax year when it came to National Insurance, it was announced in November 2022’s mini budget that the 1.25% percentage point increase rate would be reversed with immediate effect. This means that employees can once again expect to pay 12% rather than the increased rate of 13.25%.
National Insurance for self employed workers
National Insurance for self employed workers is slightly different. Those that are self-employed could pay Class 2 and Class 4 National Insurance.
For the 2023-4 tax year, Class 2 National Insurance contributions are £3.45 a week and these are paid when your profits are over £12,570 per year. This is a small increase from the previous tax year when Class 2 rates were charged as £3.15 per week.
Class 4 National Insurance contributions are set at 9% on profits between £12,570 and £50,270 and 2% on profits over £50,270.
So how does this compare to the previous year? For the previous tax year, between April 6th and July 5th, Class 4 rates were set at 10.25% on profits between £9,880 and £50,270, and 3.25% on profits over £50,270.
On July 6th 2022 the threshold rose from £9,880 to £12,570. However, Class 4 rates were likewise reduced to 9% and 2% in November 2022’s mini budget.
What does this mean for contractors?
Umbrella company contractors who pay National Insurance through the PAYE system will see their National Insurance contributions decrease in line with pre-2022 levels, as outlined above.
Umbrella Search understands this can be complicated and complex for the contractor, so it’s always worth remembering that this will all be taken care of by the umbrella company, who deducts the correct amount of National Insurance from the contractor's fee on their behalf each month.
On the other hand, a self-employed contractor will first receive their fee, and must then set aside enough to cover their tax and National Insurance bill. They must file for self-assessment, paying the amount owed retrospectively. This can be tricky and time-consuming for self-employed contractors, so many choose to pay for the services of an accountant.
To help make the things like National Insurance a little bit easier, many contractors opt to work through an umbrella company.
Why use an umbrella company?
Not only do they take care of the contractor’s tax and National Insurance contributions for them, they also offer a wide range of benefits to the contractor.
Firstly, they take care of the business and finance side of contracting. For example, the contractor merely has to input their timesheet to their chosen umbrella company, who will then invoice the client for them, collect the fee, and then pay the contractor with the correct levels of tax and National Insurance deducted.
Just as it sounds, one of the reasons that umbrella companies are so popular with contractors is that they make contracting easy and hassle-free.
After all, there is no need for contractors to deal with the daily admin, financing and paperwork that self-employed contractors do.
An umbrella company also means that the contractor has total freedom. If you decide that contracting isn’t the right path for you, you don’t face the demands of having to formally close down a limited company.
Likewise, if you just need to take a break away from contracting, you don’t have the pressure and stress of having to continue to run a limited company. You can simply step back from the umbrella company and re-join at a time that suits you.
What’s more, operating through an umbrella company qualifies contractors for statutory benefits.
This means that umbrella companies receive holiday pay, sick pay, maternity/paternity pay and a workplace pension.
Again, this is considered a huge benefit to contracting through an umbrella company, which self-employed contractors do not receive.
So, if you wish to take a break or become too ill to work on the contract at hand, you can rest assured that you will still receive statutory payments. Read more about contractor sick pay and other statutory benefits in our handy guide.
After reading about the benefits of operating through an umbrella company, why not find the perfect provider for you with the help of Umbrella Search?
Ready to let Umbrella Search help you?
Having decided that you will use an umbrella company, you will now need to find one that best suits your contracting needs.
After all, every contractor is different, so it’s important to find a company that can offer everything you need.
Thankfully, Umbrella Search is here to help. Simply get in touch with our friendly team of professionals today and take the first steps to finding an umbrella company that’s the best match for you.
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