Business Surgery: Mark Baker, from Jacobs Allen, chartered accountants, takes a look at the planned NIC increases
On September 7, a new UK- wide levy was announced to fund investment into health and social care across the country. It is estimated that an extra £12 billion per year will be raised, with £6 billion of that to be spent on the NHS in England.
The levy will be introduced in two stages. Firstly, from April 2022 the levy will take the form of a 1.25 per cent temporary increase in National Insurance Contributions (NIC) paid by employees, employers and the self-employed. NIC is not paid by those over State pension age, so they will not pay the levy.
From April, 2023, the levy will be ‘decoupled’ from NIC, with NIC rates reverting back to what they were in 2020/21. Instead, the 1.25 per cent levy will be a standalone charge.
Although technically not NIC, the levy will be subject to the same thresholds and legislation as NIC except that, crucially, it will also apply to those over State pension age. In addition to the levy there will be a 1.25 per cent increase in the tax paid on dividends from April, 2023, which will also be ringfenced to pay for health and social care.
There have not been any changes announced to the rates of income tax paid on rents or other investment income, or to capital gains tax and inheritance tax, although it is possible the levy may open the door to further tax increases.
This means that in 2022/23 employees will pay NIC of 13.25 per cent (currently 12 per cent) of their earnings over £9,568, and 3.25 per cent (currently 2 per cent) of their earnings over £50,270. Employers will pay 15.05% (currently 13.8 per cent) NIC on all earnings over £8,840. The self-employed will pay Class 4 NIC of 10.25 per cent (currently 9 per cent) of their profits over £9,568 and 3.25 per cent (currently 2 per cent) of their profits over £50,270. There is no change to the weekly Class 2 NIC flat rate paid by the self-employed or the voluntary Class 3 NIC.
In 2023/24 the 1.25 per cent levy will be paid by employees and the self-employed on all earnings and profits over £9,568, or whatever the threshold is at that time.
For dividends, the £2,000 allowance will remain, but tax of 8.75 per cent (currently 7.5 per cent) will be paid by basic rate taxpayers on dividends in excess of £2,000, with 33.75 per cent (currently 32.5 per cent) on dividends falling in the higher rate band and 39.35 per cent (currently 38.1 per cent) in the additional rate band.
The early announcement of these changes does give an opportunity for those taxpayers running their own companies to advance payments of bonuses and dividends to themselves and employees before the levy is introduced, provided of course that it makes commercial sense to do so.
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