• Chris Priebe

How to calculate employee National Insurance deductions from 6 July 2022 onwards

Updated: Jun 20

As an employer, you are responsible for deducting NI contributions from your employees' salaries but there have been several changes this year you need to be aware of.


National Insurance contributions have seen a lot of changes this year and many people are struggling to follow how exactly employer and employee NI contributions are affected, and how much employers have to deduct from their employees' salary.


This article explains how employee National Insurance deductions in 2022 have changed and how to calculate them, taking the stress out of working out your contributions for this year.


Changes in National Insurance contributions 2022/23


There have been several changes to NI contributions for this tax year 2022/23, To summarise, national insurance contributions increased by 1.25% from April 6, as did the contribution threshold, from £9,568 to £9,880. Another increase is scheduled for July, this time of the income threshold, which will rise to £12,570 (which partly counteracts the NI rate increase).


This increase will continue as a Health & Social Care levy from April 2023, when NI contributions will return to their previous rate.


Employee NI deductions are impacted by the employee's National Insurance category and their NI-taxable income. Let's start off looking at the categories.


The National Insurance categories


There are 8 employee National Insurance categories that determine an employee's NI contributions rates and the thresholds relevant for their NI-free allowance. This table covers the most relevant categories:

NI Category

Employee Group

A

Category A covers all employees except those in categories B, C, H, J, M, V and Z. Most employees fall under category A

B

Married and widowed women who are eligible for reduced NI contributions

C

Employees who are over the State Pension age

H

Apprentices under the age of 25

J

Employees who are paying their NI contributions through another job

M

Employees under the age of 21

V

Army Veterans in their first employment

Z

Employees under the age of 21 who are also paying their NI contributions through another job

Source: https://www.gov.uk/national-insurance-rates-letters/category-letters



How to calculate employee NI deductions?


Different to employer NI contributions, where there is only one rate and one threshold, employee NI deductions take into account two different thresholds and contribution rates, a higher one and a lower one.


This has the effect that - for most NI categories - deductions for every additional 1£ earned above the higher threshold of £50,268 per year increases deductions only c. 1/4 as much as income below that level, benefiting high earners.


Employee NI deduction rates


Calculating employee NI deductions is following a simple formula. Employees pay 0% on income below their monthly allowance and a certain rate on income that falls between the two thresholds and above the upper threshold. Starting from 6 April 2022 the following NI contributions rates for employee deductions are effective.

Category Letter

Allowance

(up to £1,048)

Threshold 1

(£1,048 to £4,189)

Threshold 2

(Over £4,189)

A, F, H, M, V

(most employees)

0%

13.25%

3.25%

B, I

0%

7.1%

3.25%

J, L, Z

0%

3.25%

3.25%


Formula to calculate employee NI deductions


For employees with NI categories A, F, H, M and V that means employee NI deductions are calculated according the formula below. To adjust the formula with employee of other categories you just need to replace the rates in the formula with those shown in the table above.

 

0%. ✖️ Income below £1,048

13.25% ✖️ Income between £1,048 and £4,189

3.25% ✖️ Income above £4,189


🟰 Employee NI deduction

 

Table with employee NI deductions at different annual salaries


You can find below the monthly employee NI deductions for salaries from £20,000 to £80,000 per annum, and for different NI classes.


In this table, we've taken into account the increased NI contributions rates effective 6 April 2022 and the increased income thresholds effective 6 July 2022.

​Annual Salary

A, F, H, M, V

(13.25% + 3.25%)

B, I

(7.1% + 3.25%)

J, L, Z

(3.25%)

£20,000

£82

£44

£20

£25,000

£137

£74

£34

£30,000

£192

£103

£47

£35,000

£248

£133

£61

£40,000

£303

£162

£74

£45,000

£358

£192

£88

£50,0000

£413

£221

£101

£55,000

£429

£236

£115

£60,000

£443

£249

£128

£65,000

£456

£263

£142

£70,000

£470

£276

£156

£75,000

£483

£290

£169

£80,000

£497

£304

£183


Employee benefits and some expenses also require NI deductions


National Insurance is also payable on any employee benefits or expenses. Employers must report and pay this particular NI liability at the end of the tax year.


You must pay NI on benefits such as work phones, accommodation, and bonuses. Note that every expense and benefit is calculated differently, so you need to check on what you’re required to report and pay.


You have to complete a P11D form for every employee that you have given benefits or expenses to and return it to HMRC. It is possible to deduct and pay class 1A NI through your payroll as long as you remember to register with HMRC before the beginning of the tax year.


Directors of Limited Companies


Company directors also need to pay NI contributions on any income over £9,880 as they are also considered employees . NI liability is calculated from annual earnings but is paid in accordance with your applicable payroll schedule.


Even if you’re the only employee of your company and you’re the director, your company will still need to pay NI on your salary.


2023 & The Social Care and Health Levy


Employers need to make sure that their payroll software will automatically take into account the new Social Care and Health Levy, which will be introduced in April 2023. For this, you need to include the levy as a separate item in payslips. Employees that are over the State Pension age will also pay the levy.



What about employer contributions?


Employer NI contributions are also increasing for the tax year 2022/23, which is seeing two changes resulting from changing NI rates and thresholds at different times, once from 6 April 2022 and again on 6 July 2022.


The following table shows a summary of the contributions and threshold but to get a more detailed overview of employer NI changes, head over to our related blog post, which contains an employer NI contributions calculator.

NI category

Income Threshold

(from 6 August 2022)

Employer NI on Earnings up to threshold

Employer NI on Earnings above threshold

A, B, C, J

(most employees)

£1,048 pm

(£242 pw)

0%

15.05%

H, M, V

(youngsters, veterans)

£4,189 pm

(£967 pw)

o%

15.05%


Final Thoughts


The National Insurance hike, though costly, is straightforward, once you figure it out. However, one thing you want to avoid with the income thresholds changing in April and again in July 2022, is adjusting your payroll manually. Your payroll software should take care of these changes seamlessly and communicate those to your employees on their payslips. Finally, you can look into the different methods of reducing your NI bill which could benefit both you and your employees.



FAQs about Employer National Insurance

Do employers pay National Insurance in the UK?


Yes, employers need to pay National Insurance in the UK. To do this, they deduct their employees’ NI contributions, which they pay on their behalf. They also need to pay an additional additional NI contribution on employees’ earnings above the relevant threshold.


How much NI does an employer pay in the UK?


The factors that define the amount of NI contributions you need to pay as an employer are the size of your business and the National Insurance category of your employees. For example, for the tax year 22/23, the NI contribution that employers need to pay is 15.05% on any employee earnings exceeding the secondary threshold (£175/week or £758/month).


Do employers pay NI for employees in the UK?


As an employer in the UK, you need to deduct your employees’ NI contributions as well as pay your own contributions for employer NI insurance on the earnings of your employees.