Social Care Tax Rise
Increase to National Insurance Contributions (NIC)
As you will undoubtedly have already heard, the Government has announced an increase in National Insurance Contributions (NIC) and increased tax rates on dividend income to help fund the Government’s social care plans. The Government hopes that increasing tax and NIC will help raise £12 billion a year to assist with the health backlog caused by the Covid pandemic and support social care. As part of the Government’s plan, social care costs will be capped at £86,000 from October 2023 which will be welcome news for many individuals.
NIC rates will increase by 1.25% and will apply to employer and employee Class 1 NIC. It will also apply to Class 4 NIC paid by self-employed individuals. This increase will come into effect from April 2022. From April 2023, the 1.25% increase will be re-named as the “health and social care levy” and will be extended to apply to employees of any age including those who have already reached pension age. Looking at the numbers: a worker earning £20,000 a year will be subject to additional NIC of £130. A worker earning £50,000 will pay additional NIC of £505 and a worker earning £100,000 will pay additional NIC of £1,130.
Dividend tax rates will also increase by 1.25% to 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. This increase will also apply from April 2022.
After a difficult 18 months, this news will disappoint many workers. If you have any questions regarding the increase, please contact us.