National Insurance & dividend tax rise
The Government hopes the tax rises will tackle the current backlog in the NHS, and contribute to wider social care, including disease prevention and the cost of care homes.
April 2022 will see an increase in National Insurance contributions for employers, employees and the self-employed.
The increase of 1.25% will mean higher contributions from all those who earn over the minimum thresholds.
National Insurance contributions will return to their current rates in April 2023. The additional 1.25% deduction will remain, and be renamed ‘Health and Social Care Levy’,
What it means for Directors
If you’re a Director and running a Director’s salary through your Limited Company, you’re classed as an employee. This means you’re subject to NI contributions if you earn over the NI threshold of £9,568 per year.
How this affects dividends
The tax rise will also apply to dividends. You’ll still get a tax-free allowance of £2,000 annually, but the tax rates after that will increase. The basic rate on dividends increases from 7.5% to 8.75% on total income up to £37,700. And the new rate of dividends tax on total income £37,701-£150,000 will be 33.75%.
What it means for employees
If you’re on the Pay As You Earn (PAYE) scheme, your monthly NI contributions will continue to be automatically taken from your pay before you receive it, and the deductions noted on your payslip.
If you’re currently earning £30,000 your NI contributions will increase by approx. £255 each year.
If you’re earning £100,000 you can expect to pay approx. £1,130 more per year.
Changes for employers
Employers National Insurance contributions are also increasing by 1.25%, which changes the rate from 13.8% to 15.05%.
From 2023 the 1.25% increase will be attributed to the Health and Social Care Levy and the NI contributions will go back to 13.8%.