On 7 September Boris Johnson announced that NI and dividend tax rates will increase in an effort to help fund social care, pay for coronavirus support measures and clear the NHS backlog. Will you be affected and if so, by how much?
NI Rates
NI rates will increase by 1.25% from April 2022. The increase will apply to both primary and secondary Class 1 contributions, which will increase to 13.25% and 3.25% for earnings up to, and above, the upper earnings limit respectively. Class 4 rates will also increase to 10.25% and 3.25%.
From April 2023, the increases will be carved out separately as a “health and social care levy” and NIC rates will return to 2021/22 levels. Essentially it will be a new tax.
Example1) on a salary of £15,000 per annum the current NI bill would be £651.84. After the increase kicks in, the NI increases by £67.90 to £719.74. Example 2) on a salary of £45,000 per annum the current NI bill would be £4251.84, becoming £4,694.74 (an increase of £442.90).
Dividend Tax Rates
Dividend tax rates will also increase by 1.25%, i.e. to 8.75%, 33.75% and 39.35% for basic, higher and additional rate taxpayers respectively.
However, the £2,000 dividend allowance will remain.
The increase in dividend tax rates will be legislated for in the next Finance Bill, with the government estimating that 70% of the revenue raised will be paid for by additional and higher rate taxpayers in 2022/23.