WellTax Blog

Boris Johnson announces 1.25% hike in National Insurance and dividends

August 9, 2021

In the press conference on 7 September 2021, the government announced that from April 2022 the rates of the National Insurance Contribution (NIC) and dividends will increase by 1.25%, thus generating revenue of £ 12 billion per year, to be allocated to the payment of social and health care system. The decision has been made after a long day in parliament and deviates from the Tory tax manifesto. This time the cause of the increase is mainly due to the impact of the pandemic.

From April 1, 2022, there will be a temporary 1.25% increase in the National Insurance Contribution (NIC) class 1 (employees) and class 4 (self-employed) workers, and a 1.25% increase of class 1 attributable to employers. The total increase on class 1 of the NIC will therefore be 2.5%. The increase will apply to employees (including deemed workers), self-employed and partners whose earnings exceed the threshold of Class 1 Primary Threshold/class 4 lower Profit Limit, which is £ 9568 in the current tax year 2021-22.

Existing Employer Class 1 Secondary Threshold NIC reliefs and allowances will apply at the time of withdrawal, including employer allowance of £ 4000, employer relief on apprentices and new employees in free ports. Starting from April 2023, the NIC rates will return to the levels of 2021-22, while the increase will result under the name of Health and Social Care Levy.

The tax levy will be mortgaged by law, which means that the revenues will be used exclusively for health and social purposes. From that date, the legislation will also be extended to people over the state retirement age who still work or who are currently exempt from paying the NIC. Simultaneously with the tax collection, the government has launched a 1.25% increase in the rate on dividends, starting from 1 April 2022.

In this way, the basic rate for basic rate taxpayer will be 8.75%, 33.75% for higher rate taxpayer, while for additional taxpayer rate will be 39.35%. The minimum allowance of £ 2000 will remain unchanged. The increase in the tax on dividends will be implemented in the next Budget.

Domenico Santomasi

Photo by Kelly Sikkema on Unsplash

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