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National Insurance and dividend tax increase from April 2022

1.25% increase to National Insurance contributions (NIC) and dividend tax rates from 6th April 2022.

 

Who will be affected by the NIC increase and why?

In an effort to pay for the impact of the COVID-19 pandemic on the NHS and health and social care systems, the Prime Minister has announced a 1.25% increase in National Insurance contributions from 6th April 2022 until 5th April 2023. The Government says that the changes are expected to raise £12bn a year, which will initially go towards easing the pressure on the NHS and then a proportion will be moved into the health and social care systems over the following 3 years.

The increase will apply to the following:
– Class 1 (paid by employees)
– Class 4 (paid by self-employed)
– Secondary Class 1, 1A and 1B (paid by employers)


What happens at the end of the period?

From 6th April 2023, National Insurance will return to its current rate and the extra tax will be collected as a new “Heath and Social Care Levy”. This will show up separately on payslips. The levy, unlike National Insurance, will also be extended to state pensioners who continue to work beyond retirement age.


The increase in dividend tax rates from April 2022

The Prime Minister has also announced the same 1.25% increase to the rates of dividend tax, which are payable on dividend earnings of above £2,000 per year.


How much will taxpayers pay on dividends?

The tax rates on dividend income above the £2,000 dividend rate of 0% will be:
– 8.75% for dividend income falling within the basic rate band
– 33.75% for dividend income falling within the higher rate band
– 39.35% for dividend income falling within the additional rate band.

The dividend trust rate of Income Tax will also be increased from 38.1% to 39.35% from April 2022, to remain consistent with the additional rate.


Possible action ahead of the dividend tax increase

With the tax rate increase in mind, there are some tax planning opportunities that could be considered:

– Whilst the 2021/2022 tax year rates remain lower, dividends could be maximised
before we enter the new tax year in April 2022
– Dividends received from shares in ISAs are still tax free, so transferring dividends
from investments into ISAs could also be considered
– Explore the possibility of sacrificing some of your salary to make payments into your
pension, to lower your taxable income


If you would like to find out more about the NIC increase or the dividend tax rate increase, and discuss how these might affect you, get in touch with a member of our tax team today and we’ll be more than happy to assist you with any queries.

Email: tax.department@hboltd.co.uk

Telephone: 02476 306029 or 01926 422292

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