National Insurance Tax Increase
The tax increase has been created by the Government to combat the NHS backlog. It will also fund social care initiatives, such as care home costs and disease prevention.
From April 2022, National Insurances contributions will rise by 1.25% for employees and the self-employed who earn over the minimum threshold. Employers NI contributions will also be increased by 1.25%.
The increase to NI contributions will only last 1 year, with rates returning to the current level in April 2023. However, the 1.25% tax is here to stay and will be known as the ‘Health and Social Care Levy’ from 2023.
How will this affect Directors?
Directors who run a Directors’ salary through their LTD are viewed as employees. You will make NI contributions if you earn more than £9,568 each year, which is the current NI threshold.
What does this mean for dividends?
The rate of dividend tax is also going up by 1.25%. The tax-free allowance will remain at £2,000, but rates will increase on total income up to £37,700 from 7.5% to 8.75%. And you’ll have to pay 33.75% on total income between £37,701-£150,000
How will this effect employees?
Your NI contributions will carry on being taken out of your salary before it gets paid to you. A payslip will explain what’s been deducted.
If your annual salary is £20k you’ll pay around £130 more each year.
If your salary is £50k you can expect an increase of around £505 per year.
What changes for the self-employed?
The increase applies to the Class 4 contributions. You’ll continue to complete a self-assessment each year to determine how much National Insurance you owe. From April 2022 you’ll pay 10.25% on profits between £9,569 and £50,270.
What does this mean for employers?
The current NI contribution rate for employers will rise from 13.8% to 15.05%. The 1.25% will become a separate tax in 2023 and the NI contributions will return to current levels.