How the National Insurance increases affect businesses

The new Health and Social Care tax recently announced by the Prime Minister, Boris Johnson, will initially be collected through National Insurance contributions (NICs). This rise will be paid by both employed and self-employed workers and will be an increase of 1.25 percentage points from April 202 .

Dividend tax rates will also rise by the same amount from the next tax year. The move is in a bid to help fund health and social care costs.

From April 2023 NICs will return to their current rates and a new Health and Social Care Levy will be collected instead and at the same rate of 1.25%.

Here’s what’s happening for the next tax year: 

  • Certain NIC rates will increase by 1.25 percentage points from April 2022. From 2023, the health and social care levy element will then be separated out and the exact amount employees pay will be visible on their pay slips. It will be paid by all working adults, including workers over the state pension age – unlike other NICs.

    This increase will apply to Class 1 NICs paid by employees and Class 4 NICs paid by self-employed workers.

    Downing Street says this means an employed basic rate taxpayer earning the median basic rate taxpayer’s income of £24,100/yr in 2022/23 would contribute £180/yr, while a higher rate taxpayer earning the median higher rate taxpayer’s income of £67,100/yr in 2022/23 would pay £715/yr.

    Class 2 self-employed NICs and Class 3 NICs, which are voluntary payments made to top-up state pension gaps, are not impacted by the levy. The levy will also not be taken from pension income. 
  • Dividend tax rates will rise by 1.25 percentage points from April 2022. This will apply at both basic and higher rate tax levels.

The BBC story here has further details and a graphical breakdown of how much extra it will mean for people at different pay levels.

So for business owners they need to factor these costs into next year’s cost calculations as they are not insignificant. We have also seen some business owners ensure that their staff are not impacted by raising their salaries to compensate for the tax increase.

With the many other strains on the economy from supply shortages through to Covid 19 recovery it is advised that you prepare a cashflow plan for the next 12 months so that you can take a strategic view of where your business is and where any problems may arise.

Please contact the team at MCC accountants to discuss our planning and payroll services if you would like to receive some solid, down-to-earth advice.

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