National Insurance and dividend tax increase announcementcreative77
It was announced at the start of the month by the Prime Minister that as part of the government’s ‘Building Back Better: Our Plan for Health and Social Care’ plan, there will be an increase of 1.25% in primary and secondary Class 1, and Class 4, NICs from 6 April 2022.
From 6 April 2023, the rates of NICs will return to their lower rates, when a formal legal surcharge of 1.25% commences. This will also apply to those individuals working above the State Pension age who currently do not pay NICs.
After the announcements were made, HMRC updated their guidance covering rates and thresholds for employers. This update makes it clear that the 1.25% increase will also apply to other types of NICs:
- Class 1A NICs on benefits in kind.
- Class 1B NICs in respect of PAYE Settlement Agreements.
In both cases, the current 13.8% rates will become 15.05% from 6 April 2022.
- NI classes 2 and 3 are not affected by the proposed increase.
On NICs thresholds: the government has chosen not to reveal the thresholds at which NICs applies from 2022-23. This makes it difficult to accurately measure the actual cost of the proposed rise.
In addition to the increase in NI rates, it was announced that dividend tax will also increase by 1.25% from 6 April 2022.
A wider consequence of this is in respect of loans to participators in close companies.
The rate of tax that applies to overdrawn directors’ loan accounts under section 455 CTA 2010 is directly linked to the dividend upper rate. This will mean that the s.455 rate will also increase from April 2022, from 32.5% to 33.75%.
With regards to the dividend allowance and thresholds the government’s paper doesn’t detail if there will be any changes to the tax-free dividend allowance for 2022-23 or if there will be any changes to the basic or higher rate tax bands either. However, this may be announced at the Budget which will be at the end of October.