The prime minister has announced tax rises to fund the costs of Social Care and the NHS. Breaking two election pledges, the government's paper, 'Build Back Better: Our Plan for Health and Social Care', reveals plans to raise the rates of both National Insurance Contributions (NICs) and Dividend tax by 1.25% from 6 April 2022.

NICs rates

Proposed changes to be made to Employee and Employer NICs rates 

Proposed

Employee rate

2022-23

Current

Employee rate

2021-22

Band

Current*
weekly earnings thresholds

Proposed

Employer rate

2022-23

Current

Employer rate

2021-22

Current* weekly earnings thresholds for secondary threshold (ST) 

0% 0% LEL Up to £120 0% 0%  
0% 0% LEL- PT £120 to £184 -  
13.25% 12% PT-UEL £184 - £967  
- - ST £170 to £967 15.05% 13.8% Above £170
3.25% 2% UEL Over £967 15.05% 13.8% Above £967 

 Notes

* The 1.25% tax rise will apply to earnings above the respective thresholds in future years, the government has not provided details of the earnings thresholds for 2022-23.

LEL= Lower Earnings Limit
PT = Primary Threshold
ST= Secondary Threshold
UEL = Upper Earnings Limit

Proposed changes to Self-employed rates

 

Proposed

2022-23

Current 

2021-22

From 2022-23*

2021-22

Type of NICs:

   

 Profit bands

 

Profits bands

 

Class 2 Flat rate

TBA £3.05

TBA

 

£6,515+ 

 

Class 4

0% 0%

TBA

 

Up to £9,568

 

Class 4

10.25% 9%

TBA

 

£9,500 to 50,000

 

Class 4

3.25% 2%

Above

TBA

 

Above £50,000

 

 
Notes:

* The 1.25% tax rise will apply to earnings/profits above the respective thresholds in future years, the government has not provided details of the earnings thresholds for 2022-23.

Dividend rates

From April 2022, all rates of dividend tax will increase by 1.25%. This change will apply UK-wide. It will be scored at the Budget and legislated for in the next Finance Bill.

 Tax band *

Proposed

from 2022-23

Current rates
Basic rate 8.75% 7.5%
Higher rate 33.75% 32.5%
Additional rate 39.35% 38.1%

 

Notes

* The 1.25% tax rise will apply to dividends above the tax bands in future years, the government has not provided details of the proposed tax bands for 2022-23.

Dividend tax is charged on taxable dividend income an individual receives that falls outside of the personal allowance (£12,570 in 2021-22) and the dividend allowance (£2,000 in 2021-22). Taxable dividend income excludes, for example, dividends on assets held in ISAs.

Basic rate taxpayers are expected to pay, on average, an additional £150 on their dividend income in 2022-23.

Affected higher rate taxpayers are expected to pay, on average, an additional £403 on their dividend income in 2022-23.

Additional and higher rate taxpayers are expected to contribute over 70 per cent of the revenue from this increase in 2022-23.

The government say that "Due to a combination of the £2,000 tax-free dividend allowance and the personal allowance, around 60 per cent of individuals with dividend income outside of ISAs are not expected to pay dividend tax and are not expected to be affected in 2022-23."

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