Preparing for the National Insurance & Dividend rate increases from April 2022

As part of the introduction of the Health & Social Care Levy, a 1.25% increase to National Insurance Contributions (NIC) will be introduced for employees and employers from 6 April 2022. There will also be a 1.25% rate increase applied to dividend income from the same date.
 
The plans were initially outlined in September 2021 and despite recent calls for the Levy to be postponed, the Government have confirmed their intention to go ahead with the increase.
 
The impact for employers is that NIC will increase from 13.8% to 15.05% on the following:

• On all salaries over £9,100 (£758 per month) paid to employees
• On all benefits in kind subject to class 1A NIC
• On PAYE Settlement agreements where the company settles the tax for employees on small irregular benefits.

 
The impact for employees is that NIC will increase from 12% to 13.25% on earnings between £9,880 per year (£823 per month) and £50,270 per year (£4,189 per month). For someone earning £50,270 this represents an increased NIC liability of £504 per year (£42 per month); or for someone earning £30,000 the NIC increase will be £251 per year (21 per month).
 
For those earning in excess of £50,270 the NIC rate of the excess will increase from 2% to 3.25%.
 
For the self-employed the class 4 NIC rate will increase from 9% to 10.25% on profits between £9,880 and £50,270 and from 2% to 3.25% of profits in excess of £50,270.  For someone with profits of £50,270 this represents an increase of £ 504; or for someone with £30,000 of profits the NIC will increase will £251.
 
For individuals receiving dividends the rates will increase from 7.5% to 8.75% for dividends within the basic rate of tax, 32.5% to 33.75% on dividends at higher rates and 38.1% to 39.35% in the additional rates of tax.
 
Planning opportunities
 
Everyone should now consider the opportunities available to minimise the effect of the increases:

• Consider if bonuses can be declared and paid so that the fall before 5 April 2022 so subject to the current lower NIC rates. 
• Maximise dividends in the 2021/22 tax year so the dividend is subject to the current lower rates.
• Consider introducing a pensions salary sacrifice scheme in future years to reduce the earnings liable to NIC.

 
We are here to help so contact us if you want to discuss any of the planning opportunities.