Increase in National Insurance & Dividend Tax… What does it mean for me

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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%.

2021/22 From 2022
Employee Class 1 NICs Up to £9,568 0% 0%
Main rate 12% 13.25%
Higher rate 2% 3.25%
Employers National Insurance Up to £8,840 0% 0%
Main rate 13.8% 15.05%
Class 4 NIC – Self-employed Up to £9,568 0% 0%
Main rate 9% 10.25%
Higher rate 2% 3.25%

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!

Please note that the content contained within this website is of a general nature and is in no way a substitute for professional advice. We recommend that you should always obtain professional advice which is specific to your circumstances before you take any action.

If you need any sort of advice, please contact us at at 01332 460184 or hello@vibrantaccountancy.co.uk.

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