The Government has announced that the rates of national insurance are to be increased by 1.25% with effect from 1 April 2022. The same national insurance rise will also be applied to dividend income. The purpose of the increase is to fund NHS and social care reform.
The increase will affect those people over the pension age who are still working, and who previously did not pay national insurance. It will also apply to both employee and employer contributions.
From April 2023, this 1.25% rise will be separated from national insurance and be called the Health and Social Care Levy, and will appear on payslips as a separate deduction.
The following table summarises the new rates over the next two years:
| Employee Class 1 NICs Main rate (i) / Higher rate (ii) | Employer Class 1 NICs | Self-Employed Class 4 NICs Main rate (i) / Higher rate (ii) |
|
|---|---|---|---|
| NICs rates for 2021/22 | 12% / 2% | 13.8% | 9% / 2% |
| NICs rates for 2022/23 | 13.25% / 3.25% | 15.05% | 10.25% / 3.25% |
| NICs rates from 2023/24 Health and social care levy from 2023/24 | 12% / 2% 1.25% | 13.8% 1.25% | 9% / 2% 1.25% |
| Threshold at which NICs become payable in 2021/22 | £9,568 | £8,840 | £9,568 |
(i) For the 2021/22 tax year this applies to those who earn £9,568/yr to £50,270/yr. (ii) For the 2021/22 tax year this applies to those who earn over £50,270/yr.
Dividend tax is payable on dividends exceeding £2,000 in a tax year, excluding those held in ISAs.
The following table provides the new rates for dividend tax from April 2022. This will provide a tax planning opportunity for taking dividends prior to the implementation of the rise:
| Basic rate taxpayers | Higher rate taxpayers | Additional rate tax payers | |
|---|---|---|---|
| Dividend tax rates for 2021/22 | 7.5% | 32.5% | 38.1% |
| Dividend tax rates for 2022/23 | 8.5% | 33.75% | 39.35% |
Also from October 2023, anyone with assets of less than £20,000 will not have to make any contribution for their care from their savings or the value of their home, ensuring those with the least are protected. Anyone with assets of between £20,000 and £100,000 will be eligible for some means-tested support, helping people without substantial assets.
If you have any queries on these rate changes please contact us.
September 9th, 2021
