During September the Conservative Government announced an increase of National Insurance contributions from next tax year (2022/2023) onwards, with the aim of raising circa £12bn of additional tax revenue. The funds will be used for the NHS to cover at least some of the expenditure from the pandemic and for health and social care, which both political parties agree on, has been underfunded for many years.
Changes for National Insurance
From 6 April 2022, Class 1 NIC for employees and employers, and Class 4 NIC for the self-employed will increase by 1.25%.
From 6 April 2023, the NIC rates will return to the current levels but a new Health and Social Care Levy (HSCL) of 1.25% will apply with essentially the same effect.
Under the current rules, individuals above the state pension age do not pay NIC (unless you are self-employed); from 6 April 2023, individuals over 66 will be subject to the 1.25% HSCL.
The impact of these change is that, for instance:
- An employee earning £50,000 will pay £505 more tax
- A self-employed individual with profits of £70,000 will pay £755 more tax per annum
Changes for Dividend Tax
Dividend tax rates will increase from 6 April 2022 by 1.25%; however, the £2,000 dividend allowance will not be affected.
Our Table below summarise the changes:
|Class 1 NIC (employees)||12% (£9,568-£50,270) 2% (above £50,270)||13.25% (£9,568-£50,270) 3.25% (above £50,270)||12% (£9,568-£50,270) 2% (above £50,270)|
|Class 1 NIC (employers)||13.8% (above £8,840)||15.05% (above £8,840)||13.8% (above £8,840)|
|Class 4 NIC||9% (£9,568-£50,270) 2% (above £50,270)||10.25% (£9,568-£50,270) 3.25% (above £50,270)||9% (£9,568-£50,270) 2% (above £50,270)|
|Health & Social Care Levy (HSCL)||–||–||Employees – 1.25% above £9,568 Employers – 1.25% above £8,840 Self-employed individuals – 1.25% above £9,568)|
|Basic rate dividends||7.5%||8.75%||8.75%|
|Higher rate dividends||32.5%||33.75%||33.75%|
Timing is everything
To the extent the business has sufficient distributable reserves, we would recommend that dividend payments are brought forward, so that they remain in the current tax year 2021/2022, and thus being subject to the comparatively lower existing tax rates.
The same applies to (PAYE) bonus payments, provided cash flows are sufficiently strong.
If you’d like to discuss your dividends or managing your cashflow over the coming months get in touch on email@example.com.