Social Care Levy: 1.25% National Insurance Increase (from April 6th, 2022)

We are being asked a lot of questions about the new Social Care Levy that comes into force on 6th April 2022.

With an increase of 1.25% in both Employers and Employees National Insurance Contributions this is going to have a significant impact on many, many contractors especially those operating through an umbrella company.

It is imperative that you discuss with your agency/hirer whether the “employment costs” are inclusive or excluded from your agreed rate. For any contractor that agrees a contract where the “employment costs” are inclusive of your agreed rate, this is essence means that the “employment costs” will be deducted from the rate that you have agreed. For example, if you have agreed a day rate of £300 inclusive of employment costs, this means the Employers NI, including the new levy (along with additional employment costs, such as App Levy, Pension (if applicable) and umbrella company margin) is payable from the £300 per day. With the increase in both Employers and Employees NI, you are facing a 2.5% increase in deductions, in turn meaning this is going to impact your take home pay.

So what does the increase mean to your take home?

So let’s take a look at a contractor who earns £650.00 per day over 5 days a week, on a standard 1257L X tax code with no pension:

2021 – 2022 2022 – 2023
Weekly Invoice Value £3,250.00 £3,250.00
Employers NI £368.74 £396.14
Apprenticeship Levy £14.21 £14.07
Margin £25.00 £25.00
Taxable Salary £2,842.05 £2,813.79
Employees NI £131.46 £162.97
PAYE Tax £895.02 £883.40
Net Take Home £1,815.57 £1,767.42

So as of 6th April 2022, this specific contractor will see a decrease in take home of around 2.65% from the introduction of the Social Care Levy. These calculations also take into account the amended Primary and Secondary thresholds for National Insurances.

If you have agreed a rate with your agency/hirer and this excludes the “employment costs”, this should mean that the agency/hirer pays you £300 as your agreed pay rate with the additional “employment costs” being added (and passed to your umbrella company) on top of your £300 day rate to cover the “employment costs.” This will include the Employers NI increase of 1.25%.

Ensure you ask the question before signing any contract, so at least you know! It’s your money remember!

For more information on the Government Introduction of the Social Care Levy, please click here.