• Date

    14 Sep 2021
  • Category

    Tax, Employer Solutions, Private Client

Increase in National Insurance Contributions and Dividend tax rates by 1.25% from April 2022


The Prime Minister has confirmed that the rates of NIC and dividend tax are to be increased to help fund the NHS, including the impact of the pandemic, and the gap in social care costs. It has been described by Number 10 as ‘the biggest catch-up programme in UK history’. It breaks a manifesto promise from the 2019 election and the Prime Minister said ‘This new levy will break our manifesto commitment, but a global pandemic wasn’t in our manifesto either’.


National Insurance Contributions (NIC)                                         

What is changing?

From April 2022, there will be a temporary 1.25% increase in Class 1 primary (employee), Class 1 secondary (employers) and Class 4 (self-employed) NIC. From April 2023, these increases will be legislated separately as a “health and social care” (H&SC) levy and NIC rates will return to 2021/22 levels (the H&SC levy will also extend to individuals working above state pension age, who are currently exempt from NIC). See table below for further details.

Who is affected?

The changes will affect employees and self-employed individuals earning over the primary threshold/lower profits limit, currently £9,568. 

NIC

2021/22
Current NIC threshold

Main rate/higher rate*

2021/22 Current NIC rate

Main rate/higher rate*

2022/23
NIC rates

Main rate/higher rate*

2023/24
NIC Rates and H&SC Levy

Main rate/higher rate*

Employees (Class 1)

£9,568

12%/2%

13.25%/3.25%

12%/2% and     
1.25% (H&SC)

Employers (Class 1)

£8,840

13.8%

15.05%

13.8% and   
1.25% (H&SC)

Self-employed (Class 4)

£9,568

9%/2%

10.25%/3.25%

9%/2% and 
1.25% (H&SC)


*For 2021/22 the main rate is for earnings between £9,568 and £50,270). The higher rate applies for earnings above £50,270.


Dividends

What is changing?

From April 2022, there will also be a 1.25% increase in dividend tax across all tax bands. The £2,000 dividend allowance will remain.  See table below for further details.

Who is affected?

The changes will affect all taxpayers with total dividend income above the dividend allowance.

Dividends

2021/22 Current tax rate

2022/23 Tax rate

Basic rate taxpayer

7.5%

8.75%

Higher rate taxpayer

32.5%

33.75%

Additional rate taxpayer

38.1%

39.35%

 

Possible Action before April 2022

Affected taxpayers especially in the SME and family business sector may wish to consider, subject to commercial considerations, bringing forward bonus or dividend payments ahead of the changes in the NIC and tax rates.

Get in touch

If you are concerned about the upcoming increase in National Insurance Contributions and Dividend tax rates, or would like further information on the areas discussed above, please speak with your usual Azets contact or a member of our tax team

SME Barometer Pulse Check

As part of our SME Barometer survey, which represents the ongoing views of over 750 SMEs in the UK, we would love to know your view on the following question:

Will the NIC rise in April have an effect or has already had an effect on your plans/decisions around recruitment and people resource in your business?  

 

YES         NO        DON'T KNOW

About the author

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Peter Goodman

Partner London
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