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NIC increase to affect all employed and self-employed workers from April 2022

NIC increase to affect all employed and self-employed workers from April 2022

Stuart Datlen

Boris Johnson has announced a rise in National Insurance contributions and dividend tax to raise £36bn over the next three years for health and social care reform. From April 2022, National Insurance Class 1 contributions (that will affect employed persons and their employers) and Class 4 contributions (that will affect the self-employed), are increasing by 1.25%.

These increases will affect all employed and self-employed workers that presently pay National Insurance.

This increase will only apply to NIC rates for one year. From April 2023, the 1.25% increase will be removed from Class 1 and Class 4 NIC rates and a new tax is being created to be known as the Health and Social Care Levy (HSCL).

The HSCL will appear as a separate item on payslips and tax statements for the self-employed. The Levy is the closest the UK will have to a hypothecated tax – a tax levied and applied to a specific funding objective, i.e., funds for the NHS and social care budgets.

Many smaller company employers, those that can claim the £4,000 employment allowance, will likely avoid the payment of the 1.25% increase in employers’ Class 1 contributions. However, the increase will also apply to Class 1A NIC employer contributions,  and these are not covered by the employment allowance. Class 1A NIC is payable on the value of taxable benefits provided by employers and is levied at the end of each tax year.

This change is likely to result in a substantial increase in administrative burdens and costs for businesses with the need to amend payrolls to reflect increased NIC rates from April 2022 followed by a brand new levy with effect from April 2023.

Alongside the levy, which will be paid by employees, the self-employed and businesses, the government has announced a 1.25% increase in dividend tax rates from 1 April 2022, taking rates to: 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. The £2,000 dividend allowance will remain.

You can find more information on the Health and Social care changes and how they can affect your tax liabilities and contributions to care here.

For more information or to speak to a Moore (South) advisor, please click here