Changes to National Insurance Contributions and dividend income and a future Health and Social Care Levy

On 7 September the Government announced that they intend to increase the rates of National Insurance Contributions (NIC) and dividend tax from April 2022.

National Insurance

From 1 April 2022:

A temporary 1.25% increase in Class 1 (employee and employer’s) NIC.
The self-employed Class 4 NIC rate will also rise on a temporary basis by 1.25%.

The Levy

From April 2023, the increase will be legislated as a separate, ring-fenced “health and social care levy” (the levy), NIC rates will then fall back to 2021/22 levels.

The changes from 2023 will affect all working adults, including those over state pension age (currently 66). This means from April 2023 those aged 66 and over, who are still in employment or self-employed, will pay the new 1.25% levy, but not until April 2023. The new levy will be shown separately on payslips and will constitute a formal legal surcharge.

Voluntary contributions such as Class 2 and 3 are unaffected by the levy.

Employee Class 1 (main rate /higher rate)

Employer Class 1

Self-employed Class 4 (main rate/higher rate)

2021/22 NIC rates

12% / 2%

13.8%

9% / 2%

2022/23 NIC rates

13.25% / 3.25%

15.05%

10.25% / 3.25%

2023/24 NIC rates

12% / 2%

13.8%

9% / 2%

2023/24 Health and Social Care Levy

1.25%

Dividend Tax Rates

In a similar measure, the Government also announced that all dividend rates would increase from April 2022 by 1.25%, although the £2,000 dividend allowance would remain.

Basic rate taxpayers

Higher rate taxpayers

Additional rate taxpayers

Dividend Tax Rates 2021/22

7.5%

32.5%

38.1%

Dividend tax rates 2022/23

8.75%

33.75%

39.35%

If you have any questions about how these rates apply to you, please contact our Tax team.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

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