So Boris’ announcement of a new Health & Social Care Levy to start from 2023 of 1.25% has a more immediate impact on our National Insurance Contributions and our Dividends Tax Rates from April 2022. If you employ people, you’re self employed, or your a director of a limited company and take dividends read on….
Increase in Dividend Tax
From April 2022, the rate of dividends will increase by 1.25% across all the tax bands:
- Dividends up to £50,270 will be taxed at 8.75% (from 7.5%)
- Dividends between £150,000 and £50,271 will be taxed at 33.75% (previously 32.5%)
- And dividends over £150,000 will be taxed at 39.35% (previously 38.1%).
Will there still be the £2,000 tax free dividend allowance
There has been no suggestion that this will be removed, so all seems in order that the first £2,000 of dividends will still be at a rate of 0%.
If I earn up to £50,270 in salary and dividends how much will this cost me?
If you take salary of £8,844 in 2021/22 and dividends of £41,426 you can expect your personal tax to increase for 2022/23 if you retain this amount by just over £446!
If your salary is £8,844 you will be unaffected by the changes in National Insurance.
What’s changed with National Insurance?
National Insurance is increasing by 1.25% across the classes, as you can see in the below table.
If you are an employer this means you will pay National Insurance at 15.05% rather than 13.8% for all employees over an annual amount over £8,840.
If you are an employee, this means more will be taken out of your pay packet, with you personally being taxed from 12% to 13.25% on amounts over £9,568 and over £50,270 now 3.25%.
|Employee Class 1 NICs||Up to £9,568||0%||0%|
|Employers National Insurance||Up to £8,840||0%||0%|
|Class 4 NIC – Self-employed||Up to £9,568||0%||0%|
I’m self-employed how does this impact me?
If you’re self-employed your profits will be taxed under National Insurance Class 4, therefore your profits over £9,568 but under £50,270 will be taxed at 10.25% rather than 9%. Profits over £50,270 will be taxed at 3.25% (previously 2%).
You will also pay Class 2 NIC of £3.05 per week. These will remain unaffected by the Health & Social Care Levy increases.
What happens from April 2023?
It is expected that National Insurance and Dividend Rates should reduce back down, with the introduction of the separate Health & Social Care Levy being implemented of 1.25%, however we will see what future budgets bring.
Please remember that Corporation Tax rates increase from April 2023 instead of 19% on profits over £50,000 these will be taxed at 23%.
Need further advice? Vibrant Accountancy can help!
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