National Insurance and dividend tax rises announced for social care reform

Industry News - 20th October 2021

From April 2022, the government plans to create a new social care levy which will see UK-wide tax and National Insurance Contribution (NIC) increases.

The Health and Social Care Levy (HSC Levy) will initially be funded through a temporary 1.25% increase in NICs on earned income, with dividend tax rates also increasing by 1.25%.  The money raised will be ringfenced for health and social care costs.

The increase to NICs will apply to the 2022/23 tax year and will affect working age employees, the self-employed and employers, but will not apply to Class 2 or 3 NICs.

From April 2023, the HSC levy of 1.25% will be formally separated from NIC and will also apply to individuals working above State Pension age.  NIC rates will then return to their 2021/22 levels.

Individuals who receive dividend income will also face a higher tax bill as all rates of dividend tax will increase by 1.25% from April 2022.

The dividend tax is applicable on dividend income above the frozen £2,000 dividend allowance and above the £12,570 personal allowance. Dividends on assets held in ISAs are excluded from the dividend tax.

From the 2022-23 tax year, basic rate dividend tax will be charged at 8.75% instead of 7.5% this year. Higher rate dividend taxpayers will be charged 33.75% instead of 32.5% and additional rate dividend taxpayers will pay 39.35% instead of 38.1% respectively.

Internet links: GOV.UK

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