Tax and contracting News
08 - 09 - 2021
07/09/21:
The UK government has today announced a 1.25% rise in National Insurance Contributions from April 2022. The increase is intended to fund an additional £12 billion a year to be spent on the NHS and social care in the UK.
Most UK workers currently pay National Insurance Contributions (NICs) to fund different aspects of the state benefits system that can be accessed by the worker throughout their life. The amount of NICs an individual pays each year depends on their earnings and whether they are an employee or self-employed.
From April 2023 the increase will be ringfenced in a separate Health & Social Care Levy. The Government says funds raised by these tax increases will be legally ring-fenced to help the NHS clear backlogs, as well as resolving long-standing issues around care costs. The Levy will be paid by all working adults, including workers over the state pension age who do not pay National Insurance under the current rules.
As at April 2023 National Insurance rates will revert to their original levels before the 1.25% increase.
The levy will not be taken from pension income.
The April 2022 increase will apply to Class 1 NICs paid by employees and employers and Class 4 NICs paid by self-employed workers. It will be administered by HMRC and collected through the current channels for NICs; Pay as You Earn (PAYE) and income tax self-assessment.
Based on the current 2021/2022 Class 1 National Insurance Contribution rates for employees will change as follows from April 2022:
· Basic rate taxpayers: 12% NIC, rising to 13.25% in 2022/23.
· Higher rate taxpayers: 12% + 2% = 14%, rising to 13.25% + 3.25% = 16.5% in 2022/23.
Self-Employed Class 4 NIC’s will change as follows from April 2022:
· Basic rate taxpayers: 9% NIC rising to 10.25%
· Higher rate taxpayers 9% + 2% = 11% rising to 10.25% + 3.25% =13.50%
Ø The current basic NIC Threshold for the 2021/22 tax year is £9,568 to £50,270 per annum.
Ø The current higher rate income threshold for 2021/22 is earnings over £50,270/yr.
At the press briefing on 07 September 2021, the Government suggested, by way of example, that an employed basic rate taxpayer, earning the median basic rate taxpayer’s income of £24,100 per year, would contribute an additional £180 in 2022/23. A higher rate taxpayer, earning the median higher rate taxpayer’s income of £67,100 per year in 2022/23, would pay an additional £715. Ta
Class 2 self-employed NICs and Class 3 NICs, which are voluntary payments made to top-up state pension gaps, are not impacted by the increase.
In April 2023, employees will be able to see the Health and Social Care Levy element separated out on pay advices/slips to demonstrate the exact amount employees pay for the Health & Social Care Levy.
Employers will also contribute the additional 1.25% for employees being paid in excess of £8,840 p.a. Currently the employers NIC rate is 13.8% which will rise to 15.05% for 2022/2023.
The Government also announced that it will increase the rates of Dividend Tax, which is payable on dividend income over £2,000 per year.
Taxable dividend income excludes dividends earned from investments held in ISAs.
Dividend Tax rates
1. Basic rate taxpayers 7.5% rising to 8.75% from April 2022
2. Higher rate taxpayers 32.5% rising to 33.75% from April 2022
3. Additional rate taxpayers 38.1% rising to 39.35% from April 2022
As with all new legislation, Foremans will keep our clients updated. Your Advisor is on hand to answer any questions you may have.
If you are a Limited Company Director, Sole Trader or Umbrella worker and would like further guidance on how the changes may impact you, you can contact us for further advice on 01244 625 500.
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UMBRELLA COMPANY
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General
- The user is over 21 and subject to tax in the UK
- The user wishes to minimise their tax liability
- The user is subject to national insurance i.e.he/she is not over retirement age
- Only current tax rates and limits are applied
- No tax mitigation payments are made e.g. pension contributions
- Only 3 digit letter 'L' tax codes shown in the drop down list can be entered
- The user does not have a turnover greater than £100,000 where fewer reliefs and or higher taxes may apply
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- Limited Company or Sole Trader will be VAT registered
- Limited Company or Sole Trader will take advantage of Flat rate VAT
- Flat rate applied includes the benefit of the additional 1% applicable to the first year of VAT registration
Limited Company Conditions
- One director / one shareholder in a Personal Service Company
- Director of Personal Service Company elects to vote for 100% dividend after salary, costs and expenses
- Director's salary is maximum salary to the primary threshold for NI
- The Limited Company is trading normally i.e it is not subject to IR35 and is not a Managed Service Company
NOTES
- The Current tax rates are taken from the Fixed Data Table
- The current Value Added Tax Rate is 20% and is applied to all invoices and expenses as appropriate
- The Director's Salary is fixed in relation to National Insurance thresholds. Higher Rate Taxpayers should consider the advantages and disadvantages of a larger annual salary or bonus
- Higher Rate Taxpayers may wish to consider the advantages and disadvantages of shared ownership of their business
- Users with a tax code other than three digits and letter "L" may telephone or email our Development Department to request a detailed calculation
- Generally the use of an Umbrella rather than an Agency payroll is only efficient if sufficient weekly expenses are allowable and claimed
- The expenses claimed under an Umbrella should not prevent the proper operation of National Minimum Wage
Dave Wilde, Foremans (UK) Limited
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