National Insurance contributions (NICs) and the three dividend tax rates will all increase by 1.25% from April 2022.
This is being done to create a social care package funded through a new UK-wide health and social care levy. This is expected to raise around £12 billion a year to help pay for the social care system in England.
The levy will apply to employers, employees and the self-employed from April 2022. This will then be followed by those who work beyond their state pension age from April 2023.
How will the levy affect how much NICs and dividends I pay?
The main (12%) and higher (+2%) rates of Class 1 NICs which apply to employees will increase to 13.25% and 3.25% respectively from 2022/23.
At the same time, the employers’ Class 1 NICs rate will rise from 13.8% to 15.05%, while the self-employed Class 4 NICs main (9%) and higher (+2%) rates will go up to 10.25% and 3.25% respectively.
The increase will not apply to Class 2 NICs – the flat rate paid by the self-employed with profits above the small-profits threshold. This is currently £6,515 a year in 2021/22 – or Class 3 NICs voluntary contributions.
Directors and shareholders who receive dividends from a company’s profits will pay their share as well, with the three tax rates being unchanged since 2010/11.
For 2022/23, the basic rate of dividend tax increases to 8.75% (up from 7.5%), the higher rate rises to 33.75% (up from 32.5%) and the additional rate is 39.35% (up from 38.1%).
From October 2023, anyone with assets under £20,000 will have their care costs fully covered by the state, while those with between £20,000 and £100,000 will receive state support.
There will also be a cap of £86,000 on what people will be asked to pay over their lifetime for care, regardless of what assets they might or might not own.
If you would like further information about how the health and social care levy will affect you or your business, please don’t hesitate to get in touch with PKB.
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