Following the Budget announcements from last month, there have been several changes to come into effect for national insurance and dividend tax rates which could affect many tax positions from the tax year 2022/23.
Dividends for 2022/23
Dividend tax increases were announced in September 2021 and this was part of the increased funding into social care, which also included tax increases on National Insurance. The dividend tax rate increase is 1.25% commencing 6th April 2022.
The First £2,000 is tax-free. This is the dividend allowance available to all taxpayers. The new rates from 2022/23 are as follows:
|Dividend ordinary rate (for dividends within basic rate band)||8.75%||7.50%|
|Dividend upper rate (for dividends within higher rate band)||33.75%||32.50%|
|Dividend additional rate (for dividends above higher rate band)||39.35%||38.10%|
For example – the financial impact of the increased rates will impact a £30,000 dividend (before the dividend allowance) that is taxed at the higher rate of taxation, resulting in additional tax payable of £350.
National Insurance for 2022/23
From April 2022 the rate of National Insurance contributions across all classes (except class 2 and 3) will change for one year. The amount of the contribution will increase by 1.25% which will be spent on the NHS and social care across the UK.
This increase in National Insurance contributions will apply to:
- Class 1 (paid by employees)
- Class 4 (paid by self-employed)
- secondary Class 1, 1A and 1B (paid by employers).
The new rates from next tax year are as follows:
|Employee’s primary class 1 rate between primary threshold and upper earnings limit||13.25%||12.00%|
|Employee’s primary class 1 rate above the upper earnings limit||3.25%||2.00%|
|Employer’s secondary class 1 rate above the secondary threshold||15.05%||13.80%|
|Class 4 rate between lower profits limit and upper profits limit||10.25%||9.00%|
|Class 4 rate above upper profits limit||3.25%||2.00%|
For example – Shareholders/directors of a company will experience an increase in salary cost of 2.5% overall, taking into account the increased cost for employer and employee NIC (on the basis the salary level is subject to NIC).
Changes in the tax year 2023-24 – Levy
From April 2023, the 1.25% levy will be formally separated out to become a separate tax on earned income. National Insurance rates will return to their current (2021/22 tax year) levels. The levy will be applicable to the same population simultaneously as the NI rates increases in 2022-23. Employers may be able to use existing NICs reliefs (such as employment allowance, apprenticeship supports) to cover the extra levy on their payroll costs. The levy will be collected through Pay As You Earn and Income Tax Self-Assessment.
How can Animo help?
Our expert consultants are well versed on the effects of the Autumn Budget announcement and are available to any who feel as though they may need some guidance or advice on best practices for their business. If you would like more information on the effects of the Autumn budget on yourself or your business, have a look at the provided resources, or get in contact with our team today for tailored advice. Get in contact with us by either calling +44 (0)207 060 0835, email firstname.lastname@example.org or by filling in a contact form below.