National Insurance and Dividend Tax to Rise from April 2022

From April 2022, National Insurance and Dividend Tax rates are set to rise by 1.25 per cent, with both rises planned to help fund NHS and social care costs.

The government as announced an increase on National Insurance and Dividend Tax rates with a few to funding the NHS and social care to the tune of £12 billion.

National Insurance Contributions rise

National Insurance Contributions (NICs) will increase by 1.25 per cent for one year only for employees, employers and the self-employed from April 2022. Class 1 employee and employer, Class 1A and 1B and Class 4 NICs are all affected. Anyone above State Pension age will not be affected.

From April 2023, a new Health and Social Care Levy of 1.25 per cent will be introduced. This will apply to those paying Class 1 employee and employer, Class 1A and 1B and Class 4 NICs, and will also extend to those over State Pension age who are in work. At this point, the National Insurance rates that rose in April 2022 will revert back to what they were before.

The Health and Social Care Levy will apply to those above State Pension age with income from employment or self-employment that exceeds £9,568, and will be collected through PAYE or Income Tax Self-Assessment as appropriate. On payslips, the levy contributions will appear as a separate item.

Dividend Tax increase

For those who earn income through dividends, there will also be an increase of 1.25 per cent, meaning the basic rate of Dividend Tax will rise from 7.5 per cent to 8.75 per cent, the higher rate from 32.5 per cent to 33.75 per cent, and the additional rate from 38.1 per cent to 39.35 per cent.

Whilst dividends will in most cases continue to represent a tax efficient income source, these changes will obviously impact negatively, so it may be wise to take advice to explore whether other earning structures may be more appropriate.

Why the increase?

On 7 September 2021, the government set out its new plan for adult social care reform in England.

From October 2023, a new £86,000 cap on the amount anyone in England will need to spend on their personal care over their lifetime will be introduced.

In addition, the upper capital limit (UCL), the point at which people become eligible to receive financial support from their local authority, will rise to £100,000 from the current £23,250.

These changes will mean that people with less than £100,000 of chargeable assets will never contribute more than 20 per cent of these assets per year. The UCL of £100,000 will apply universally, regardless of the circumstances or setting in which an individual receives care. The lower capital limit (LCL), the threshold below which people will not have to pay anything for their care from their assets, will increase from £14,250 to £20,000.

Naturally, these changes will need to be funded somehow, which is the reason for the increase on National Insurance Contributions and Dividend Tax.

Looking for personal tax advice?

Here at Partridge Muir & Warren, we have an in-house team of tax advisers, financial planners and legal specialists ready to provide you with the advice you need to reduce your costs and maximise your income, whether you run a business, or are self-employed.

To learn more about how we can assist you, please get in touch.