This week the Prime Minister announced his plans for resolving the health and social care issues. National insurance contributions and dividend tax rates will increase by 1.25% across the UK from April 2022, with the projected £12bn annual income to be ring fenced to pay for health and social care.
When will it apply?
From 1 April 2022, there will be a temporary 1.25% increase in class 1 (employee) and class 4 (self-employed) national insurance contributions (NIC) paid by workers, as well as a 1.25% increase in class 1 secondary NIC paid by employers. The 1.25% increase will also apply to class 1A contributions which employers pay on benefits provided to employees.
Who will pay it?
The increase will apply to employed (including deemed employees) and self-employed individuals and partners earning above the class 1 primary threshold / class 4 lower profits limit (currently £9,568 in 2021/22).
Employers will pay the additional 1.25% for employees earning above the class 1 secondary threshold (currently £8,840 in 2021/22).
Existing reliefs and allowances from employer’s secondary class 1 NIC will apply to the levy including the £4,000 employment allowance, which means that many employers with a small workforce will not actually pay the additional 1.25% in 2022/23.
From April 2023, the increases will be legislated separately as a “health and social care levy” and NIC rates will return to 2021/22 levels.
From that date, the legislation will also apply to individuals over state pension age in employment or self-employment, who are currently exempt from paying NIC.
The levy, including the temporary NIC increase in 2022, will be legislated for shortly.
Changes in the dividend rate
Alongside the levy, which will be paid by employees, the self-employed and businesses, the government has announced a 1.25% increase in dividend tax rates from 1 April 2022, taking rates to: 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. The £2,000 dividend allowance will remain.
The increase in dividend tax rates will be legislated for in the next Finance Bill and the government estimates that 70% of the revenue raised will be paid for by additional and higher rate taxpayers in 2022/23.