Last week, the proposed National Insurance and dividend tax rises were successfully passed through the commons and will officially come into effect from April 2022. The revenue raised will go directly to support the NHS and any other equivalent bodies around the UK.
At a time with many still furloughed and many businesses still struggling under the grip of the continuing pandemic, tax rises were the last thing that was needed. Here at AME, whilst we anticipated tax rises in the future due to sums of money used for furlough, SEISS grants etc. we had not anticipated such rises, so soon. So how will this affect you?
From April 2022, National Insurance rates and Dividend tax rates, will increase by a rate of 1.25%. This will be considered a ‘temporary’ increase as from April 2023, you will see the introduction of a new Health and Social Care (H&SC) levy, where revenue raised will be ring fenced to support the UK health and social care bodies.
The Increase in National Insurance will not affect those working above state pension age (excluding Employers NI), however, as HMR&C can be quite sneaky, unfortunately, the new levy will affect those above the state pension age thereafter. The H&SC levy will however still be subject to the same reliefs and thresholds. Below, you can see the rate changes in detail:
| NIC | Current threshold (Main / Higher) | Current rate (21/22) (Main / higher) | 22/23 rates (Main / higher) | 23/24 Rates & Levy (Main / higher) |
| Employee’s class (Class 1) | £9,568 | 12% / 2% | 13.25% / 3.25% | 12% / 2% & 1.25% H&SC |
| Employers NI (Class 1) | £8,840 | 13.8% | 15.05% | 13.8% & 1.25% H&SC |
| Self-employed (Class 4) | £9,568 | 9% / 2% | 10.25% / 3.25% | 9% / 2% & 1.25% H&SC |
For those earnings between £9,568 and £50,270 respectively, the main rate will apply. The higher rate applying when over the higher rate threshold.
For those company director/shareholders taking low salary and higher dividends, below are the changes coming into effect:
| Dividends | 2021/22 rate | 2022/23 rate |
| Basic rate | 7.5% | 8.75% |
| Higher rate | 32.5% | 33.75% |
| Additional rate | 38.1% | 39.35% |
The £2,000 tax free dividend allowance will remain in place, but there is currently no plan to reduce these taxes going forward. Further details can be found via: https://www.gov.uk/government/publications/health-and-social-care-levy/health-and-social-care-levy.
Whilst these taxes are unavoidable in the future, plan for the present now to save you money. What can you do to save National Insurance and Dividend taxes? We’ve listed a few handy tips that you should consider:
- Consider paying into a company pension scheme.
- Deduct work related expenses and keep these up to date.
- Contact your employer regarding benefits in kind. Some benefits you do not pay NICs.
- Consider self-employment which holds a lower rate of National Insurance.
- Bring forward any bonuses and dividends into the 21/22 tax year.
- Consider stocks and shares ISA’s.
Our view
For the most part, the term, “We’re all in this together”, is very much prevalent in these changes. Whether you are employed, self-employed or a director receiving dividends, everyone will be paying the same increase in taxes. With the increase in employers’ national insurance contributions as well however, unfortunately, those who are employers will be taking a double hit; on their income and others.
We feel the incentives of becoming self-employed are becoming less so year by year and the increase in Employers National Insurance will ultimately hit employment. With Corporation tax increasing from April 2023 as well (for those of profits above £50,000), it is going to be a tough time ahead for many business owners. We recommend future planning with dividends, salaries and more, to potentially save you thousands.
For more on this or anything else, don’t hesitate to contact us for a free consultation.
