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National Insurance and Dividend Tax Changes!

The Saint's Blog

National Insurance and Dividend Tax Changes!


The Government has announced a hike in National Insurance and Dividend Tax from next April to pay for health and social care reforms. The controversial change has drawn widespread criticism directed towards the Government and the Conservative party.


Dividend Tax Change


Unexpectedly, the Dividend Tax rates have been changed again, with many company owners feeling hard done due to the lack of support made by the government. The dividend tax rates will rise by 1.25%. 


The Dividend Tax is a tax on money given to you by a company you hold shares in, usually when you have made a profit. You still can use the £2,000 tax free allowance called the Dividend allowance. The current tax rate for basic tax ratepayers is 7.5%



Health And Social Care Tax


A new health and social care tax is being introduced to help the NHS recover from the Covid pandemic and improve social care in England.


The result of the new tax means employees and self-employed will both have to pay more tax from April 2022.


From April 2023 National Insurance will return to its current rate, but a new health and social care tax will be introduced at a rate of 1.25% which leaves us in the same position.


On your wage slips, it will say “Health and Social Care Levy”.


The reason for criticism is mainly based around the highly wealthy people who are marginally affected by this change plus the untouched employee national insurance when the upper limit is breached.


Currently, workers pay 12% National Insurance on earnings between £9,564 and £50,268. However, anything earned above this amount is only taxed at 2% under National Insurance…


What Difference Does This Make To My Tax Bill?

If you are employed, this is how the changes will affect you:


If you are earning £10,000 you are currently paying £51.84 - now you will be paying £57.24

£20,000 you would be paying £1,251.84 - now you will be paying £1,381.24

£40,000 you would be paying £3,651.84 - now you will be paying £4,032.24

£60,000 you would be paying £5,078.84 - now you will be paying £5,709.24

£80,000 you would be paying £5,478.84 - now you will be paying £6,359.24

£100,000 you would be paying £5,878.84 - now you will be paying £7,009.24

If you are self-employed, this is how the changes will affect you:

£10,000 you would be paying £197.48 - now you will be paying £202.88

£20,000 you would be paying £1,097.48 - now you will be paying £1,227.88

£40,000 you would be paying £2,897.48 - now you will be paying £3,277.88

£60,000 you would be paying £4,016.38 - now you will be paying £4,646.78

£80,000 you would be paying £4,416.38 - now you will be paying £5,296.78

£100,000 you would be paying £4,816.38 - now you will be paying £5,946.78


Who Pays National Insurance Contributions?


Employees

Employees pay Class NIC on their annual salaries which are greater than £9,500. The current Class 1 NIC is 12% and the higher rate is 2%. This will rise to 13.25% and 3.25% respectively in April 2022. 


Earnings above £9,568 to £50,270, NIC is charged for employees at 12%. Over £50,270 it is charged at 2% currently


Employers also have to pay National Insurance on top of their employees wages, Class 1 NIC for employers is currently 13.8% and will rise to 15.05%! For any earnings above £8,840, NIC is charged.


Self-Employed


Self-Employed have 2 kinds of NIC they have to pay:


Class 2 NIC which is chargeable on profits over £6,515 and Class 4 NIC on profits over £9,568


Class 4 main rate is currently 9% which will rise to 10.25% and the higher rate which is currently 2% will be 3.25%


Class 2 NIC is £3.05 per week.


What Is Social Care?


The government is expecting this change to raise £12 billion a year with money going towards the ever increasing NHS backlog however a proportion of the money will be moved into Social Care over the next 3 years.


The Social Care system helps older people with high care needs. Under the new Government changes, people in England will pay no more than £86,000 in care costs from October 2023. Plus, anyone with assets (which may include your home) worth less than £20,000 will have their care fully covered by the state.


Those between £20,000 and £100,000 in assets will have their care costs subsidised.



This article was written for Saint Financial Group, a multidisciplinary group based in the UK that helps construction businesses develop and grow. SaintFG offers a range of quality solutions in supporting businesses.

Saint provides the luxury of free business consultancy for of our clients, call now for your free consultation with a friendly business advisor to discuss your burning questions and put that energy back into your business!

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Written by:

Dylan O'Rourke MAAT

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National Insurance and Dividend Tax Changes!
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