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* |
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."
See Increases to Dividend Tax Rates
Are you enjoying our content?
Thousands of accountants and advisers and their clients use www.rossmartin.co.uk as their primary TAX resource.
Register with us now to receive our receive our FREE SME Topical Tax Update & newletter.
