It is proposed that there will be a 1.25% rise in National Insurance Contributions (NICs) from April 2022 paid by both employers and workers and will then become a separate tax on earned income from 2023 – calculated in the same way as NIC and appearing on an employee’s payslip. Note that the 1.25% increase applies to the Class 4 contributions paid by the self-employed on their profits as well as the Class 1 contributions paid by employees increasing the rates to 10.25% and 13.25%. The employers Class 1 rate will increase from 13.8% to 15.05%, however many small businesses are able to set off a £4,000 employment allowance against their employers NIC liability.
Many workers operating through personal service companies to whom the new “off-payroll” working rules apply will also be caught by the proposed measures.
The 1.25% additional levy doesn’t just apply to national insurance contributions, it is proposed that the income from share dividends, earned by those who own shares in companies, will also see a 1.25% tax increase. This would mean that after the £2,000 tax free dividend allowance the rate of tax would be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for those with income in excess of £150,000 a year.
Details of the proposals are set out in the following document: 6.7688_CO_Command paper cover_060921 (publishing.service.gov.uk)
If you have any concerns or queries relating to this proposed change, please contact your usual Beavis Morgan Client Partner or email info@beavismorgan.com.
Our tax experts at Beavis Morgan understand the demands placed on individuals and businesses. We are readily available to provide you with the right advice and solutions to help you improve your net worth and increase growth and profitability.