To try and fill the gaping hole in the UK’s coffers as a consequence of the pandemic in an attempt to raise an extra £12bn a year specifically for health and social care, all rates of National Insurance Contributions (NIC) and income tax on dividends will increase by 1.25% from 6 April 2022.
Read on to find out all the details...
Some good old fashioned political branding from April 2023 the increase will call the effective NIC the “health and social care levy”, allowing the government to to include working taxpayers who are over state pension age, who were previously exempt from NIC. So for the sake of clarity for the rest of this article I’ll refer to the “Health and Social and care levy” as in an increase in NIC taking effect from 6 April 2022, also to confuse matters further the new charge on dividends is technically an increase in income tax not NIC. Confused yet?
It’s also worth pointing out that the NIC regime does have “ thresholds” that dictate the rate of NIC payable, which operate along a similar principle to income tax, but for NIC there are different types (known as classes) of NIC payable which depend on the source of income, I have covered this of in the relevant sections below.
Also at the time of writing the NIC starting thresholds which dictate when a NIC charge starts and have not yet been confirmed for 2022/2023, so we’ll work on the assumption that these are frozen at current rate for the purpose of this article. There are also a few other nuances on more complicated areas of NIC that are still to be ironed out in terms of the increase, but this article will just focus on the main headline areas.
So who is affected
● Employees (under state pension)
● Employers
● The Self employed
● Shareholders of Limited companies receiving dividends
● Older workers (over state pension age)
How much more will I pay
Employees
The rate of NIC payable for employees is Primary Class 1 NIC and is currently payable at the following rates:
£0 – £9,568 @ 0%,
£9,568 – £50,270 @ 12%
Above £50,270 @ 2%
So with the NIC increase these from 6th April 2022 these rates will change to:
£0 – £9,568 @ 0%
£9,568 – £50,270 @ 13.25%
Above £50,270 @ 3.25%
So in summary an extra 1.25% on all employment income above £9,568.
Employees who will receive a benefit in kind from their employers, such as private medical or a company car, do not pay employees NIC as such benefits are subject to Class 1A NIC, which is only payable by employers and our current understanding is that there will be no change to this fundamental principle of NIC legislation.
Employers
The main rate of NIC payable for by employers on salaries / wages is secondary Class 1 NIC and is currently payable at the following rates noting that is no cap on banding change at the top end:
£0 –£8,840 @ 0%
Above £8,840 @ 13.8%
So with the increase in NIC from 6th April 2022 these will change to:
£0 – £8,840 @ 0%
Above £8,840 @ 15.05%
There will also be an increase in the Class 1A NIC charged on the provisions of benefits in kind, this is currently 13.8% on the “cash equivalent” of the benefit, this also will be increasing to 15.05%.
In summary an extra 1.25% will be payable by employers on all NIC rates.
Self employed
Self employed individuals pay two types of NIC, Class 4 on profits and a flat rate of Class 2 NIC.
The current rates for Class 4 NIC are:
£0 – £9,568 @ 0%
£9,568 – £50,270 @ 9%
Above £50,270 @ 2%
These will be increasing from 6th April 2022 to:
£0 – £9,568 @ 0%
£9,568 – £50,270 @ 10.25%
Above £50,270 @ 3.25%
Class 2 NIC is currently £3.05 per week (£158.60 per year) and the government has confirmed that the increase in NIC will not apply to Class 2 NIC
Dividends
As dividends are technically investment income and outside the scope of NIC legislation, in order to include dividends within the new levy, the government have raised the rate of income tax on dividends by 1.5%. It is with noting that dividends received on investments held within ISAs are tax free and will not be caught by the increase.
The current rate of tax on dividends are:
Dividend allowance* £2,000 @ 0%
Basic rate tax band @ 7.5%
Higher rate band @ 32.5%
Additional rate band @ 38.1%
From the 6th April 2022 the rate of tax on dividends will be:
Dividend allowance* £2,000 @ 0%
Basic rate tax band @ 8.75%
Higher rate band @ 33.75%
Additional rate band @ 39.35%
*At the time of writing it is not confirmed if from 6th April 2022 if dividend allowance be the same level.
Older workers (over state pension age)
Employees over the state pension age are currently exempt from primary Class 1 NIC, but from 6th April 2022 they will have to pay the additional NIC charge @ 1.25% on all of their earnings above £9,568.
Self-employed individuals who are over the state pension age on 6 April 2023, will also pay an additional 1.25% on profits over £9,568 per year.