In a bid to help fund health and social care costs, National Insurance contributions (NICs) and dividend tax rates will rise from April 2022
National Insurance Contribution changes from April 2022
Employees will pay 1.25% more on National Insurance (NI) from April 2022.
A recap on who pays NI:
- All employees on their salaries (those who earn upwards of £9,564 per year)
- Self-employed individuals pay it on their profits
- Employers also pay additional contributions for their staff
However, from April 2023, National Insurance will return to its current rate, with the tax collected in this period forming the Health and Social Care Levy. This is different from National Insurance, as state pensioners who are still in employment are also required to pay it.
This increase will apply to Class 1 National Insurance contributions paid by employees, and Class 4 National Insurance contributions paid by those who are self-employed. HMRC collects these contributions automatically using PAYE and self-assessment tax return submissions.
For reference:
| Class 1 (£9,568 – £50,270 per year) / Class 2 (£50,270+ per year) |
Employer Class 1 NICs | Self-Employed
Main rate / Higher rate |
|
| NI % for 2021/22 | 12% / 2% | 13.8% | 9% / 2% |
| NI % for 2022/23 | 13.25% / 3.25% | 15.05% | 10.25% / 3.25% |
| NI % 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 NI % become payable in 2021/22 | £9,568 | £8,840 | £9,568 |
The government has claimed that these changes are expected to raise £12 billion a year for the health and social care sector. This will initially be to support the NHS to help alleviate the pressure it has faced due to Covid-19.
After this period, the funds will then be distributed among the social care system over the next 3 years to help resolve pre-existing funding issues surrounding the cost of care. The social care levy has been put in place to support older people and those with high care needs with their day-to-day tasks to ensure they are getting the assistance they need to live.
Dividend tax rate changes from April 2022
Employees will pay 1.25% more on dividends from April 2022. Dividends is money given to you by a company which you hold shares in, typically when it has made profit (excluding profits made from ISAs). This rate is payable on dividend earnings upwards of £2,000 per year.
For reference:
| 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 from 2022/23 | 8.75% | 33.75% | 39.35% |
If you would like to discuss these tax changes with one of our experts, then please contact us.
