11 September
By Chris Gumbley
Categories: Personal/Government/Corporate/Business/HMRC/Industry News/Taxation

NIC & Dividend tax to rise by 1.25% from April 2022

The Government is introducing a UK-wide 1.25% Health and Social Care Levy based on National Insurance Contributions (NICs) and an increase to dividend tax that will come into effect from April 2022 to fund investment in health and social care.

How is National Insurance Changing?

The levy will be introduced effectively from April 2022, which means that NICs for working age employees, self-employed and employers will increase by 1.25% and be added to the existing NHS allocation for social security provision in the UK.

This means that from this date the current 12% rate on earnings between £9,564 and £50,268 will rise to 13.25% and the current 2% rate on earnings over £50,268 will rise to 3.25%. Anyone earning less than the Primary Threshold/Lower Profits Limit of £9,568 in 2021-22 will not pay the Levy.

Businesses must also make an additional contribution of 1.25%. Employer National Insurance is currently at 13.8% and will therefore rise to 15.05%

Once HMRC’s systems have been updated, from April 2023 the 1.25% Levy will be formally separated out and revenues ring-fenced for health and social care. This will mean that the National Insurance increase will then appear on employee’s payslips as a “Health and Social Care Levy” and NIC rates will return to their 2021-22 levels. From this date, the Levy will also apply to those above state-pension age who are still in employment.

The announcements also say that NIC rates on profits for the self-employed (i.e. sole traders and partnerships) will also increase by 1.25% - but this will not apply to the Class 2 flat rate or Class 3 voluntary contributions.

Existing NICs reliefs which support employers will apply to the new levy. Companies employing apprentices under the age of 25, all people under the age of 21, veterans and employers in Freeports will not pay the Levy for these employees as long as their gross earnings are less than £50,270, or £25,000 for Freeport employees.

Increases in tax on dividends

At present, you do not pay tax on any dividend income that falls within your Personal Allowance (the amount of income you can earn each year without paying tax).

You also get a dividend allowance each year which is currently £2,000. You only pay tax on any dividend income above this dividend allowance. There are no indications that these rules will change.

However, there will be increased tax charge on dividends in excess of the dividend allowance.  How much tax you pay on dividends above the dividend allowance depends on your Income Tax band. These rates will all increase by 1.25%; the new rates from April 2022 are set out below.

 Tax Band

 Tax rate on dividends over the allowance

 

 Current Rate

 Rate from April 2022

 Basic Rate

 7.5%

 8.75%

 Higher Rate

 32.5%

 33.75%

 Additional Rate

 38.1%

 39.35%

 

The Governments “Build Back Better: Our plan for Health and Social Care” document states that together with the increases to the rates of dividend tax, the levy is due to make available around an additional £12 billion per year on average for health and social care across the UK

Naylor Wintersgill tax director Chris Gumbley comments:

“These increased rates in NIC, and the subsequent Health and Social Care Levy, together with the increases in dividend tax, could be quite a burden for owner-managed businesses in particular, at the same time as they try to maintain pay levels for staff and trade out of the pandemic.  We will be looking closely at the final details once they are announced so that we can help our clients to plan ahead for these changes.”

We are here to help

The above only provides a brief summary of what we know so far as at 8th September 2021 and may be subject to change.  We will be monitoring the situation carefully and will be back in touch as more details are announced, however if you do have any queries or concerns in the respect of the above, please do not he get in touch with our tax team on tax@naylorwintersgill.co.uk or call 01274 733184.