HM Revenue & Customs (HMRC) is warning companies to urgently update their payroll software systems to reflect the government’s decision to reverse the 1.25% increase in national insurance rates introduced in April 2022.
The change, announced on Thursday, September 23, 2022 and set to take effect on November 6, 2022, will see National Insurance (NI) rates reduced by 1.25% for employees, employers and the self-employed, several months after the previous government introduced the high score.
In a communication to businesses, HMRC warned that swift action would be needed on news of this unexpected “in-year” tax cut to ensure company payroll systems are updated in time for the November pay cycle and ensure that employees do not end up earning more. of the necessary NI contributions.
“We realize that the timeline for this is tight and some employers may not be able to implement the changes in time. HMRC will direct employees to their employers to correct any overpaid NICs (National Insurance Contributions) in the first instance,” the statement said.
The tax collection agency has also moved to assure businesses using its free HMRC Basic PAYE tools to manage their payroll that this software will automatically update to reflect the change, before urging users of alternative payroll systems to make sure that your suppliers are aware of what is happening. .
“We have also written to payroll software developers to inform them of these changes and have asked them to take appropriate action. Therefore, you should contact your software development initially with any queries,” the communication added.
The government’s announced cut to National Insurance rates was made public before Finance Minister Kwasi Kwarteng released his first fiscal statement, called a mini-budget, on Friday, September 23, 2022.
As Computer Weekly previously reported, various stakeholders from across the contracting community had expressed hope in the lead up to the event that a cut in national insurance rates would come.
The Association of Independent Professionals and Self-Employed Workers (IPSE) has been fiercely opposed to the increase in National Insurance since it was first mooted, and its policy director, Andy Chamberlain, congratulated the new chancellor for his “sensible decision” to remove that.
“Ever since the former prime minister announced this measure, we have been calling for it to be removed,” he said. “The increase in National Insurance will have affected anyone who works, but those who work through an umbrella company, often against their wishes, have been doubly affected, because they are unfairly forced to bear the burden of not only the employee NI, but employer NI. too.”
He added: “We are delighted that the chancellor has made the sensitive decision to reverse this unfair tax increase.”
Matt Fryer, managing director of umbrella company Brookson Group, agreed that umbrella company contractors will welcome the change, seeing an increase in their take-home pay as a result, provided the benefit is passed on to them by their chosen supplier.
“This is a double-whammy benefit for umbrella employees, who will see an increase in take-home pay due to both the reduction in the employees’ NIC and the employer paying less in the employers’ NIC. Umbrella employees should ensure that their Umbrella employer transfers all NIC savings to them,” he said.
“However, it will result in an unexpected administrative burden for general providers and accountants, who will need to modify their systems in the middle of the fiscal year and communicate with affected employees and customers.”