Nobody likes the idea of a tax and National Insurance hike, but from April 2022, employees and employers will be expected to contribute towards the new health and social care plan. Umbrella employees will be subjected to a double-whammy, as we’re going to explain in this article. Keep reading, and we explain how the upcoming rise to National Insurance will impact umbrella company employees.
Health and Social Care Levy
The coronavirus pandemic has had a catastrophic impact on the UK’s economy. Few can argue against Prime Minister Boris Johnson’s plan to boost the government’s earnings to tackle NHS and social care shortcomings. However, the PM has been heavily criticised for how he has gone about raising funds.
Referred to as the Health and Social Care Levy, Boris Johnson has unveiled the government’s plans to raise £12 billion for the National Health Service and social care. MPs voted in favour (319 to 248) of the new proposal, despite having only 24 hours’ notice.
How will umbrella company employees be impacted?
From April 2022, the following uplifts will come into effect:
- 25% increase will apply to both Class 1 and Class 4 National Insurance Contributions (NIC).
- Class 1 Employers NICs will increase to 15.05% (from 13.8%) – on earnings that exceed £8,840.
- Class 1 Employees NICs will rise to 13.25% from 12%.
- Class 4 NICs (standard rate) will rise on earnings over £9,568 to 10.25% (from 9%).
- Class 4 NICs (higher rate) will rise from 2% to 3.25%.
The increased NICs come into effect in April 2022. However, from April 2023, this “extra payment will become a separate tax – called the Health and Social Care Levy – on earned income. It will show up separately on payslips.”
Umbrella company employees are subjected to both employers National Insurance and Employees National Insurance Contributions. Therefore, from April 2022, if you’re working through a brolly, you will probably see a slight decline in your pay retention – as your NICs will increase by 2.5%.
To minimise the impact, it’s a good idea to discuss your assignment rate with your recruitment agency or direct with the end client – to see if they’re prepared to offer an uplift. We expect several temporary workers to express their displeasure about the increased NICs to their umbrella. However, it’s important to remember that this isn’t the fault of compliant umbrella companies because it’s their responsibility to follow HMRC’s rules and regulations.
Umbrella company employees aren’t alone – limited company directors will suffer too
There is certainly an argument that the government is targetting limited company directors again. Firstly, there was a lack of support for contractors with a personal service company (PSC) during the coronavirus pandemic. Now, dividend tax on shares will increase from 7.5% to 8.75& from April 2022 (basic rate). Higher rate dividend tax will grow to 33.75% from 32.5%, and additional rate dividend tax will be uplifted to 39.35% from 38.1% (applies to earnings over £150,000).
Top 10 umbrella companies
To ensure you’re in the best hands with your umbrella payroll, we’ve collated a list of our top 10 umbrella companies. Each of our top 10 are accredited by either the Freelancer and Contractor Services Association (FCSA) or Professional Passport, and they have temporary workers’ best interests at heart. To ensure you’re paid correctly and in accordance with HMRC’s rules and regulations, you must use a compliant umbrella company. Please check out our top 10 – as some have special offers at the moment.
