Tax Update Sept 2021

Tax Update Sept 2021
Mark

Mark

It has recently been announced that there will be an increase in National Insurance Contributions (NIC) by 1.25 percentage points across the whole UK from April 2022. This is projected to raise £12bn annually which is earmarked to pay for health and social care.

The increase will apply to employees and self employed individuals, including partners in partnerships/LLPs, earning above the Class 1 Primary Threshold or Class 4 Lower Profits Limit. 

The increase will also apply to employer’s NIC and, therefore, the overall increase is 2.5% covering employee’s and employer’s NIC. 

Class 1A NIC (benefits in kind) and Class 1B (PAYE Settlement Agreements) are also to increase by 1.25% percentage points.

From April 2023 the increase will be reclassified as a “health and social care levy” and charged separately from NIC with the NIC rates reducing accordingly.

However, from April 2023 the 1.25% “health and social care levy” will be extended to self employed individuals or partners over State Pension age who are currently exempt from NIC.

Whilst existing reliefs and allowances from employer’s NIC will apply to the levy, including the employment allowance, reliefs for employers of apprentices etc. the overall impact will be significant for many employers.

So that this increase is not limited to employees, employers and the self employed, it has also been announced that all income tax dividend tax rates will increase by 1.25% from April 2022.

A summary of the current NIC and dividend tax rates as well as the rates from April 2022 (before the 1.25% NIC increase is charged as a separate levy from April 2023) is as follows:

 

 

Current

April 22 - 23

Employee's NIC - Primary Threshold to Upper Earnings Limit

12%

13.25%

Employee's NIC above the Upper Earnings Limited

2%

3.25%

Employer's NIC above the Secondary Threshold

13.80%

15.05%

Self employed - Class 4 to the Upper Profits Limit

9%

10.25%

Self employed - Class 4 above the Upper Earnings Limit

2%

3.25%

Dividend tax rate - basic rate

7.50%

8.75%

Dividend tax rate - higher rate

32.50%

33.75%

Dividend tax rate - additional higher rate

38.10%

39.35%

The levy, including the temporary NIC increase for 2022/23, is to be legislated for shortly. The levy is intended to fund social care in the UK, the financing of which is to change from October 2023 with an individual’s contribution to certain care costs to be capped.

Although full details of these changes are not currently available, in the short term, depending on an individual’s marginal rate of tax, advancing the payment of bonuses/dividends to this current tax year may be appropriate for some taxpayers to limit the impact of these changes.

A review of the remuneration of high earners as well as dividend strategies of company shareholders may also be worthwhile, especially as the rate of corporation tax in the UK is to increase to 25% (subject to marginal relief) from 1 April 2023. 

Each individual’s circumstances are different so please contact us if you wish to know how these changes are likely to affect you.

You can contact me, Mark Coleman at mcoleman@harbinson-mulholland.com

 

 

 

 

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