From April 2022, the Government plans to create a new social care levy which will see UK-wide tax and National Insurance Contribution (NICs) increases. There will be a 1.25% increase in NICs on earned income, with dividend tax rates also increasing by 1.25%.
How much extra will I have to pay?
The Health and Social Care Levy will apply to employees and employers liable for Class 1 NICs and to self-employed individuals liable for Class 4 NICs. It will be introduced from April 2022.
It’s important to note the NIC increase will also apply to employers too, who will pay an additional 1.25% in employer NICs from April 2022.
Employers will have to pay the levy for employees earning above the Secondary Threshold of National Insurance, which is £8,840 in 2021-22.
However, the Employment Allowance allows eligible employers to reduce their NICs liability by up to £4,000 per year and this means the Government believe that 40% of small business owners will paying nothing extra in employer NICs.
Dividend tax also set to rise
Individuals who receive dividend income will also face a higher tax bill as all rates of dividend tax will increase by 1.25% from April 2022.
The dividend tax is applicable on dividend income above the frozen £2,000 dividend allowance and above the £12,570 personal allowance. Dividends on assets held in ISAs are excluded from the dividend tax.
From the 2022-23 tax year, basic rate dividend tax will be charged at 8.75% instead of 7.5% this year. Higher rate dividend taxpayers will be charged at 33.75% instead of 32.5% and additional rate dividend taxpayers will pay 39.35% instead of 38.1% respectively.
If you would like to discuss your options for next year, please get in touch.