The government has announced tax changes to fund £12 Billion a year on average to be spent on the NHS and social care sector across the UK.
National Insurance Contributions (NIC) will increase by 1.25% for one year for employees, employers and the self employed from April 2022. This will cover Class 1 (employee and employer), Class 1A and 1B and Class 4 (self employed) NICs.
There will also be an equivalent increase in the dividend tax rates from April 2022
From April 2023, a new ring fenced Health and Social Care Levy of 1.25% will be introduced which will apply to those who pay Class 1 (employee and employer), Class 1A and 1B and Class 4 (self employed) NICs and will also be extended to those over State Pension age who are in work.
When the new levy comes into effect, National Insurance rates will revert back to current levels.
Health and Social Care Levy more information
Impact on individuals
the Levy will be paid by employed and self employed individuals and partners earning above the Primary Threshold/Lower Profits Limit of £9,568in 2021-22. In 2022-23, a typical basic rate taxpayer earning the median basic rate taxpayer's income of £24,100 would be expected to pay an additional £180 and a typical higher rate tax payer earning a median higher rate taxpayers income of £67,100 would be expected to pay an additional £715.
Impact on businesses
Employers will pay the new Levy for employees above the Secondary Threshold of £8,840 in 2021-22, although existing reliefs will apply for employers of apprentices under the age of 25, all employees under the age of 21, veterans, and new employees in Freeports from April 2022.
The Employment Allowance allows eligible employers to reduce their annual employer National Insurance liability by up to £4,000. An estimated 40 percent of all employers, around 640,000 business, are expected not to pay the Levy due to the Employment Allowance in 2022-23.
Dividend Tax Rates
Dividend tax is charged on taxable dividend income an individual receives that falls outside the personal allowance (£12,570 in 2021-22) and the dividend allowance (£2,000 in 2021-22). Taxable dividend income excludes, for example, dividends on assets held ISAs.
Affected basic rate taxpayers are expected to pay, on average, an additional £150 on their dividend income in 2022-23. Affected higher rate taxpayers are expected to pay, on average, an additional £403 on their dividend income in 2022/23.
Additional and higher rate taxpayers are expected to contribute over 70 percent of the revenue from this increase in 2022-23.
Due to a combination of the £2,000 tax free dividend allowance and the personal allowance, around 60 percent of individuals with dividend income outside ISAs are not expected to pay dividend tax and are not expected to be affected in 2022-23