The Government has been criticised for it’s decision to increase National Insurance and dividend tax as part of it’s new plans for health and social care.
Taxpayers face an increase in their National Insurance contributions (NICs) and dividend tax rates from 2022.
To explain how this significant change may affect you, please use our helpful FAQ below:
How much is the National Insurance rate increasing?
The Health and Social Care Levy will see a 1.25 percentage point increase in NICs.
When will National Insurance rates increase?
The Health and Social Care Levy will be effectively introduced from April 2022. From 2023 it will then “be formally separated out” under new legislation.
Who will the increase affect?
The increase in NICs will initially affect employees over the age of 16, but below state pension age, earning more than £184 per week or the self-employed with profits of £9,569 or more a year. The increase also applies to employer contributions.
From 2023, the Health and Social Care Levy will also apply to individuals working above State Pension age as well. Currently, this group are not required to pay any NICs.
Will the new health and social care reforms affect dividends?
Dividend tax rates will be increased by 1.25 percentage points to help fund the health and social care reforms.
From April 2022, those in receipt of dividends will retain the £2,000 tax-free dividend allowance but will see 1.25 percentage points added to each rate of dividend tax above this.
The new dividend tax rates from April 2022 will be as follows:
- Basic rate – pay 8.75 per cent
- Higher rate – 33.75 per cent
- Additional rate – 39.35 per cent
In most cases, splitting your income between salary and dividends, where possible, will still be more tax-efficient.