National Insurance Levy & Dividend Tax Increase
Today the government confirmed that there will be a new levy introduced to pay for the health and social care crisis that we are currently facing as a country. Although it has been announced as a simple 1.25% levy, there is a bit more to it.
From April 2022 there will be an additional 1.25% added on top of National Insurance. This is both to the employee and the employer and the self employed. This method of collecting it is temporary, because HMRC do not have the ability to get their systems in place.
From April 2023 this charge will stop, NI will revert back to its former percentages and the increase will become its own tax fund. At this point it will be extended to workers of a pensionable age.
In addition to the above, the government is also adding 1.25% to the rate of tax that individuals pay on dividends.
So, if you are an employee, you will be charged an additional 1.25% per year on your gross pay.
If you are an employer, you will pay an additional 1.25% on all of your employees salaries (assuming they are already subject to NI). This is a cost that the employer bears ON TOP of gross salaries.
If you are a director of your own limited company and you receive dividends, this will cost you an additional 1.25%, pushing the basic rate of dividends up to 8.75% and the higher rate up to 33.75%. The £2,000 tax free band will not be affected and neither will ISAs.
If you are an investor, you will also pay the new rate on dividends.
The only real escapees appear to be landlords who hold their properties personally.
We will be in touch with further updates soon.
Photo by Courtney Cook on Unsplash (It's a Chevy...as in "to the levee"...levy? It was as close as I could get to a relevant photo)