Changes to National Insurance and Dividend Taxes

As the Prime Minister confirmed this week, from April 2022 certain National Insurance Contributions (NICs), paid by both employed and self-employed workers, and dividend tax rates will both rise by 1.25% in an effort to help fund the cost of health and social care.

NIC rate changes

From 1 April 2022, there will be a temporary 1.25% increase in class 1 (employee) and class 4 (self-employed) NICs paid by workers, as well as a 1.25% increase in class 1 secondary NICs paid by employers (so 2.5% in total).

From 2023, the health and social care levy element will then be separated out and the exact amount employees pay will be visible on their pay slips. Unlike other NICs, it will be paid by all working adults, including workers over the state pension age.

An employed basic rate tax payer earning the median basic rate taxpayer’s income of £24,100 p.a. in 2022/23 would pay £180 p.a., while a higher rate taxpayer earning the median higher rate taxpayer’s income of £67,100 p.a. in 2022/23 would contribute £715 p.a.

Dividends tax changes

The self-employed and businesses will see a 1.25% increase in dividends 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 government estimates that 70% of the revenue raised will be paid for by additional and higher rate taxpayers in 2022/23.

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