News - Tax

NIC and dividend tax rates set to increase by 1.25%

9 September 2021

On Tuesday 7th September, the Prime Minister confirmed that rates of national insurance and dividend tax rates are to be increased by 1.25% to pay for the impact of the COVID 19 pandemic on the NHS and to address the funding gap for health and social care.

From 1 April 2022, there will be a temporary 1.25% increase in class 1 national insurance contributions (NIC) for employees and class 4 self-employed NIC paid by workers. The class 1 secondary NIC paid by employers will also increase by 1.25%. The increase will also apply to class 1A and class 1B NIC paid by employers.

Existing reliefs and allowances such as the £4,000 employment allowance and reliefs for employers of apprentices will apply to the levy.

From April 2023, the increases will be legislated separately as a health and social care levy and NIC rates will return to 2021/22 levels.

The health and social care levy will be set in law so that the revenues will be ring-fenced for health and social care to try and tackle the funding gap. From that date, the legislation will also extend to the revenue arising from individuals over state pension age in employment or self-employment, who are currently exempt from paying NIC.

Alongside the levy, the government has also announced a 1.25% increase in dividend tax rates from 1 April 2022, increasing rates to 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. The £2,000 dividend allowance will remain.

We are encouraging all our clients to consider the impact of these changes and what it will mean for them.

For more information please contact us here.