By Emily McKenna.
The Prime Minister made an announcement at the beginning of September that National Insurance Contributions will increase by 1.25% as of April 2022.
Dividend Tax rates will also increase.
This is the second time in recent years that the Prime Minister has announced an increase to National Insurance rates but the last time public pressure forced him to U-turn on his decision. So it’s by no means guaranteed that these increases will materialise. That being said, knowing that a potential tax increase may be on the horizon is useful to plan for.
How will this affect me as an Individual?
The increase in NICs will initially affect everyone earning over the age of 16, but below state pension age, earning more than £184 per week through employment or with profits of £9,568 or more a year in self-employment.
From 2023, the Health and Social Care Levy will also apply to individuals working above State Pension age as well. Currently, this group is not required to pay any NICs.
How will this affect me as an employer?
If you’re an employer, the rate changes could make the process of hiring staff more expensive. Employers pay a percentage of Class 1 National Insurance for each employee, depending on how much they get paid. The 1.25 percentage point increase also applies to employer contributions separately.
Dividend tax rates will also increase by 1.25 percentage points from April 2022. Those in receipt of dividends will retain the £2,000 tax-free dividend allowance.
There are tax planning opportunities to be aware of. For example, If you have the capacity to declare dividends, and were planning to delay these until the new tax year, it’s worth considering declaring dividends now rather than later at a potentially higher rate.
If you would like support into planning the most tax-efficient way of taking money out of your business this year and next, then please get in touch with your Client Manager or email firstname.lastname@example.org and a member of the team will talk you through our tax planning service.