Whilst this will initially be seen by an increase in the
existing National Insurance rates, from 6 April 2023 this is likely to be replaced by the new levy, which
will form a separate line in employee wage slips.
Currently, National Insurance contributions cease when an individual reaches state pension age – however it is expected that working individuals over state pension age will be expected to contribute to the new levy.
National Insurance Contributions (NICS)
From 6 April 2022, NICS are set to increase by 1.25% - meaning that someone with a salary of £25,000 will pay an additional £193, while an individual whose salary is £50,000 will be £505 worse off.
The current 12% rate for earnings between £9,564 and £50,268 will rise to 13.25%, whilst the 2% rate for earnings above this will rise to 3.25%.
The changes could place an additional burden on employers – with the employer rate of Class 1 NICS is also set to rise 1.25% from the current rate of 13.8%.
The current thresholds are to remain in place, meaning those earning below the primary threshold of £9,564 will still be exempt from making contributions.
All of the current tax rates can be found on the Lovewell Blake Tax Rate cards for 2021/22.
Self-Employed
Currently, the self-employed enjoy a slightly lower Class 4 NIC rate of 9% on profits between £9,569 and £50,270. However this is also set to rise by 1.25%, meaning that while the self-employed will continue to pay lower NICS than those in employment, they will also see a drop in their post-tax income.
The higher rate of Class 4 NICS of 2% will also increase by the 1.25%.
Dividend Rates
Limited company directors who draw income in the form of dividends are also set to lose out – as dividend tax rates will also increase by 1.25%.
The current dividend rates are 7.5%, 32.5% or 38.1% depending on whether you are a basic, higher or additional rate taxpayer.