The Prime Minister announced on 7 September that the government will introduce a new 1.25% Levy to provide an extra £12 bn a year to support the NHS and social care.
From April 2022 it is proposed that there will be a 1.25% rise in National Insurance Contributions (NICs) to be paid by both employers and workers. This will then become a separate Levy on earned income from 2023/24 – calculated in the same way as NIC and appearing on an employee’s payslip.
Note that the 1.25% increase also applies to the Class 4 contributions paid by the self-employed on their profits. The Class 1 NI contributions paid by employees increase to 13.25% of earnings above £9,568 and the self-employed rate increases to 10.25%. The 3% differential remains for the time being, although there are rumours that the rates will align in the future. Above £50,270 earnings or profits the rate will be 3.25%.
The employers Class 1 NIC rate will increase from 13.8% to 15.05% from 6 April 2022, however many small businesses are able to set off the £4,000 employment allowance against their employers NIC liability. Many workers operating through personal service companies to whom the new “off-payroll” working rules apply will also be caught by the proposed measures.
DIVIDEND TAX RATES ALSO INCREASING FROM 2022/23
It is also proposed that there will be a 1.25% increase in the rate of tax payable on dividends received by those who own shares in companies. This would mean that after the £2,000 tax free dividend allowance the rate of tax would be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for those with income in excess of £150,000 a year. This will catch many family company director/shareholders who traditionally “pay” themselves by taking a low salary and larger dividends to minimise NICs.