National insurance contributions and dividend tax rates will increase by 1.25 percentage points across the UK from April 2022, with the projected £12bn annual income to be ringfenced to pay for health and social care.
Prime Minister has confirmed that rates of national insurance are to be increased to pay for the impact of the coronavirus pandemic on the NHS and to address the long-standing funding gap for health and social care.
From 1 April 2022
There will be a temporary 1.25% increase in class 1 (employee)
Class 4 (self-employed) national insurance contributions (NIC 1.25% increase in class 1 secondary NIC paid by employers (so 2.5% in total).
The 1.25% increase will also apply to class 1A and class 1B NIC paid by employers.
Primary Threshold for Employed or Employees
The increase will apply to employed (include deemed employees) and self-employed individuals and partners earning above the class 1 primary threshold/class 4 lower profits limit (currently £9,568 in 2021/22).
Employers will pay the additional 1.25% for employees earning above the class 1 secondary threshold (currently £8,840 in 2021/22). Existing reliefs and allowances from the employer’s secondary Class 1 NIC will apply to the levy including the £4,000 employment allowance.
Health & Social Care Levy
From April 2023, the increases will be legislated separately as a “health and social care levy” and NIC rates will return to 2021/22 levels. The levy will be hypothecated in law, meaning that the revenues will be ringfenced for health and social care. overstate pension age in employment or self-employment, who are currently exempt from paying NIC.
The levy, including the temporary NIC increase in 2022, will be legislated for shortly.
1 April 2022, taking rates to:
- 8.75% for basic rate taxpayers (Current 7.5%) Under £50,000 Incomes
- 33.75% for higher rate taxpayers(Current 32.5%) £50K + till £150K
- 39.35% for additional rate taxpayers(Current 38.1%) £150K +
- The £2,000 dividend allowance will remain.
The tax-raising measures and their impacts are outlined in the government’s plan for health and social care, which was published alongside the Prime Minister’s speech. It estimates that of the £12bn revenue expected to be raised each year, £11.4bn will come from the levy.
HM Treasury’s analysis of the impacts of the measures concludes that households with the highest 20% of incomes will contribute more than 40 times that of those with the lowest 20% of income, with more than one-third of the overall tax increases coming from the top 10% of households.
Meanwhile, individuals with assets of less than £20,000 will not make any contribution to care costs from savings or the value of their home (an increase from £14,000), and those with assets between £20,000 and £100,000 will be eligible for means-tested support.