On Tuesday this week the Prime Minister announced a change in tax rates which will affect most, if not all of us in the coming years. The increase in National Insurance and tax rates are projected to raise in excess of £12 Billion in revenue and are to be ringfenced to pay for health and social care.
National Insurance
The increase of 1.25% will take effect from April 2022 and be applied to both the Employee and Employer contributions and also to Class 4 NIC which is paid by the self-employed. The increase will also be applied to Class 1A National Insurance paid by Employers on benefits provided to its employees. The additional employer contribution can be covered within the existing employment allowance available of £4,000 per annum if this is not already utilised in full.
For the tax year 22/23 the increased contribution will be reflected in a temporary increase in the rate of National Insurance but from April 2023 there will be an entirely new tax known as the ‘health and social care levy’. This will be shown separately on payslips and any revenue generated will be required by legislation to be directed towards paying for health and social care. Currently individuals above state retirement age are not required to contribute to NIC. This will continue until 5/4/2023 when the rate of NIC is temporarily increased, however from 6/4/2023 people who continue to work beyond state retirement age will be required to contribute the 1.25% health and social care levy.
Dividend tax
Alongside the increase in National Insurance, it was also announced that the dividend tax rate will also increase by 1.25%, this will take the rate from 7.5% in the basic rate to 8.75% from 6 April 2022. Higher rate taxpayers will contribute 33.75% and additional rate taxpayers 39.35%
We understand the increase in NIC, and dividend tax will be collected in the same way as NIC and tax are now, i.e., via your payslip for employees or on a self-assessment tax return. More details are likely to be released in the coming weeks or at the Budget which has been announced as taking place on 27 October 2021.
Please get in touch with us if you have any questions on how you will be affected.