PM announces National Insurance increase

07.09.2021
Victoria McIntosh
Tax, Payroll

Boris Johnson has announced a new “Health and social care levy” to address the current funding crisis in the sector.

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.

Current rates can be viewed here.

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. 

If you have any questions

Wide-ranging tax planning and compliance services for individuals seeking advice and guidance from our team of experienced and highly qualified professionals.

Friendly and coherent advice and guidance on accounting and tax matters for small business owners including those starting out for the first time.

Established businesses requiring accounting and tax compliance services, forward thinking tax planning advice and the support to help your business succeed.

Our full range of enhanced corporate services aimed at large companies and those requiring audit, assurance, corporate tax advisory and diverse tax planning services.

Glossary

Test

This is a test definition

more