National Insurance contributions and dividend tax will increase to pay for social care

The Government has confirmed that National Insurance and dividend tax rates will be increased, to address the long-standing funding gap for health and social care.

How and when will National Insurance contributions (NICs) change?

From April 2022, there will be a temporary 1.25% increase in National Insurance contributions.

The increase will apply to the employed, self-employed and employers.

Class 1 National Insurance contributions paid by employees will be raised by 1.25%. This will be matched by their employers, who will also face a 1.25% increase in class 1 secondary NIC on employee’s earnings (2.5% in total), as well as class 1A and class 1B NIC.

Class 4 National Insurance contributions are also due to rise by 1.25%, affecting both the self-employed and partners in a partnership who earn above the class 1 primary threshold or the class 4 lower profits limit (currently set at £9,568 in 2021/22).

From April 2023, these increases will be replaced by the “Health and Social Care Levy” and NIC rates will return to 2021/22 levels. The new Levy is also expected to extend the revenue raising measure to individuals over state pension age, who are currently exempt from paying most NIC.

What will happen to dividend taxes?

Alongside the Levy, the Government has announced a 1.25% increase in dividend tax rates from April 2022, taking rates to:

  • 8.75% for basic rate taxpayers (previously 7.5%)
  • 33.75% for higher rate taxpayers and (previously 32.5%)
  • 39.35% for additional rate taxpayers (previously 38.1%)

The £2,000 dividend allowance will remain.

What does this mean for business owners?

It’s important that remuneration and profit extraction plans are examined carefully, to ensure that funds are withdrawn from companies in the most tax efficient manner.

How can we help?

If you have any questions or would like to discuss tax planning opportunities, please contact our Associate Director David Portman (DavidPortman@lubbockfine.co.uk) or your usual Lubbock Fine contact.

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