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NIC tax changes announced 07-09-2021
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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