National Insurance (NI) Changes: How it Affects Contractors


As you’re probably aware, National Insurance (NI) is generally mandatory for anyone earning over £190 a week. It pays for benefits like state pensions, maternity allowance and statutory sick pay. The UK government has decided that a temporary NI increase is necessary in the wake of the Covid-19 pandemic, and that means NI changes that will raise your National Insurance Contributions (NIC). The resulting revenue will be channelled towards funding the NHS and Social Care until April 2023, when a Health and Social Care levy will take its place. 

Changes in the NIC Primary Threshold Limit

See below the new lower earnings limit indicating when employees need not pay National Insurance. For full information on the various threshold limits, visit the HM Revenue and Customs website.

6th April 2022 – 5th July 2022

  •  £190 per week
  • £823 per month
  • £9,880 per year

4th July 2022 – 5th April 2023

  • £242 per week
  • £1,048 per month
  • £12,570 per year

Who is Affected by the NI Changes?

NIC changes from April 2022 are affecting all people who work for a living along with their employers. But NI changes from July 2022 may offer some relief. Payment thresholds will be raised, so lower earners who paid more between April and July may find themselves not liable for NI from then on. From July, the threshold is raised to  £12,570 a year.

Knowing how NI contributions work will help you to see their impact on contractors. From April 2022, employees and the self-employed paid 1.25 percent more towards NI. When people are employees, the employer pays a further 1.25 percent on top of the employees’ contribution. It’s here to stay, though under a different name, once the Health and Social Care Levy is implemented in 2023. 

Simply put, anyone who earns a reasonable amount of money, and who isn’t a pensioner pays more. Employers pay more too. So, how does this affect you as a contractor?

How NI Changes July 22 Affect Different Types of Workers

For regular employees, it’s business as usual. Their employers deduct NI from their earnings, and make their own contribution on top of that. Apart from noticing a slight reduction in their income and NI listing at a higher percentage on their payslips. There’s nothing left for them to do except be prepared. 

If you employ people, you’ll be making the extra 1.25 percent deduction from your employees’ pay and matching that. It’s certainly an additional cost to businesses, and it’s to be hoped it won’t drive up prices although it’s likely that it will have at least some impact. After all, higher costs mean lower profits unless you increase prices. 

Since April 2022, sole traders with no employees also have to pay the extra 1.25 percent on their monthly earnings. However, there could be a hidden cost here since they’re likely to have their financials taken care of by accountants who, in turn, are also facing higher NICs and may well pass that cost on to their clients.

On the surface of it, however, umbrella company employees will experience the highest NI cost as a result of the NI changes. Here’s why. As employers, umbrella companies must cover the cost of employing people. This amount plus the agency fee is deducted from their payslips, and the employee gets the rest, less the required deductions for PAYE. It’s easy to see where this is going. With both the cost of employment and the usual deductions to cover, contractors working through umbrella companies are liable for the full 2.5 percent, at least, between April and July. 

How to Offset NI Changes When You’re Working Through an Umbrella Company

As we’ve already mentioned, most businesses seem likely to pass on the cost of changes to NI charges to their customers sooner or later. As a contractor working through an umbrella company, you set your remuneration, and the best way to cover this cost is to tack on an extra charge for your services. That’s easy enough to do for new contracts, but if you’re working under an existing contract, your best bet will be to appeal to your customers, asking them to approve an uplift in your rate. 

Because you’re in the position of being an independent contractor working through a body that handles your payroll deductions on your behalf, deciding whether you will enter into this negotiation will be up to you. After all, the primary motivation for working through an Umbrella company is to enjoy the advantages of being deemed an employee while still retaining your independence.

In the wake of National Insurance Changes, UK businesses of every kind will be looking to offset costs. It’s worth remembering that working through an Umbrella Company has many advantages for your clients too, making them more likely to accept a reasonable increase in your charges.

Keep it Real With Evolve CS

At Evolve CS, we keep it real. Not all umbrella companies are as transparent about where the money you earn goes. But at Evolve, you’ll always know the facts, and your payslip will reflect all costs deducted from what you earn. Meanwhile, you don’t have to waste time scratching your head about complicated legislation and how to ensure you’re compliant. We do that for you. 

NI changes affect everyone, and though, on the surface, it may seem that you’re carrying more than your fair share of the increase, you set your own rates, and can hope to recover them over the course of time. Other than this, everything remains the same, and working through an Umbrella company really does simplify the business of being an independent contractor. Talk to us today if you’d like to know more.