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Health and Social Care Levy: Increase in National Insurance and Dividend Tax from April 2022

Increase in National Insurance and Dividend Tax from April 2022, image of a nurse tending to an elderly person | Crunch

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    Increases in National Insurance Contributions and Dividend Taxes have been introduced by the government to provide additional resources required for the NHS and for social care services. 

    The increases are part of the government's strategy to pay for the impact of the coronavirus pandemic and address identified funding gaps. The increases will take effect from April 2022.

    Increase in National Insurance Contributions

    A new health and social care levy (the levy) has been introduced by the government. The levy will apply to employees, employers who pay Class 1 (A and B) National Insurance Contributions (NICs) and self-employed individuals who pay Class 4 NICs. The levy will be introduced from April 2022. Those above State Pension Age who are employed or self-employed are not impacted by the April 2022 changes, but they will need to pay the levy from April 2023.

    From April 2022: Employees and employers will pay more in National Insurance with 1.25% added to existing rates.

    From April 2023: Once HMRC’s systems are updated, the 1.25% levy is separated out and paid in addition to National Insurance, which will return to the 2021/22 tax year levels.

    The levy will apply to earnings/profits above the respective National Insurance thresholds in future years, as determined by the government and announced by the Chancellor of the Exchequer in the budget each year. 

    Existing reliefs and allowances from employers' secondary class 1 NICs will apply to the levy, including the £4,000 employment allowance, reliefs for employers of apprentices, newly employed veterans, and new employees in freeports.

    The changes between the 2021/22 tax year and up to the 2023/24 tax year are shown in the table below. The 2021/22 tax year thresholds are provided as an illustration only. 

    Health and Social Care Levy rates: Increases to National Insurance rates from April 2022

    Tax year Employee rate Employer rate Self-employed rate
    Main Higher Main Higher
    2021/22 12% 2% 13.8% 9% 2%
    2022/23 13.25% 3.25% 15.05% 10.25% 3.25%
    2023/24 NI Rate 12% 2% 13.8% 9% 2%
    2023/24 Levy 1.25% 1.25% 1.25%
    National insurance threshold 2021/22 tax year, charged on all earnings/profits above: £9,568 £8,840 £9,568

    Dividend tax increase

    Dividend tax is charged on taxable dividend income an individual receives above the annual personal tax-free allowance (£12,570 for the 202/22 tax year) and over the dividend allowance (£2,000 in the 2021/22 tax year). Dividends earned within an Individual Savings Account (ISA) are excluded from dividend tax. 

    From April 2022: All rates of dividend tax will increase by 1.25%. This change will apply across the UK. 

    The increases are shown in the table below.

    Tax year Basic Rate Higher Rate Additional Rate
    2021/22 7.5% 32.5% 38.1%
    2022/23 8.75% 33.75% 39.35%

    What this means for Crunch clients

    Crunch will continue to provide the best tax-efficient advice for our clients, based on their personal circumstances. Many directors of limited companies take only a small amount of salary from their company and will not be affected by the changes to national insurance rates where a salary does not exceed a threshold.

    The increase in dividend tax will mean more tax is paid where earnings exceed the total of the personal and dividend tax-free allowances. While the government has said these tax-free allowances are frozen until 2026, the situation may change based on the government’s need to raise taxes in the future.

    You can find out more about the government’s plans for health and social care in this publication.