Proposed NIC and Dividend Tax Rates

The government has recently brought forward plans to change the funding of social care with a proposed increases in NIC and dividend tax rates . It is proposed that there will be a 1.25% rise in National Insurance Contributions (NICs) from April 2022 paid by both employers and workers and will then become a separate tax on earned income from 2023 – calculated in the same way as NIC and appearing on an employee’s payslip. Note that the 1.25% increase applies to the Class 4 contributions paid by the self-employed on their profits as well as the Class 1 contributions paid by employees increasing the rates to 12.0% and 13.25%. The employers Class 1 rate will increase from 13.8% to 15.05% however many small businesses are able to set off the £4,000 Employment Allowance against their employers NIC liability.

Many workers operating through personal service companies to whom the new “off-payroll” working rules (IR35) apply will also be caught by the proposed measures.

The 1.25% additional levy doesn’t just apply to national insurance contributions, it is proposed that the income from share dividends, earned by those who own shares in companies, will also see a 1.25% tax increase. This would mean that after the £2,000 tax free dividend allowance the rate of tax would be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for those with income in excess of £150,000 a year.

Many commentators have noted that these proposals are a clear breaking of a Conservative manifesto pledge and that many of the losers will be the same business owners who received very little support from HMRC during the Covid crisis.

Details of the proposals are set out in the following document: 6.7688_CO_Command paper cover_060921 (publishing.service.gov.uk)

To discuss the proposed changes to the NIC and dividend tax rates Call Brian Russell on 01661 72004 or em)ail