Tax rises – national insurance and dividend rates

What does the prime minister’s announcement last week mean for your clients?

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Prime Minister Boris Johnson announced on 7 September that, from April 2022, the government will introduce a UK-wide 1.25% Health and Social Care Levy, based on national insurance contributions (NIC) ringfenced to fund the investment in health and social care.

The levy will apply to the same population and income as class 1 (employee, employer) and class 4 (self-employed, including partners) NIC, and to the main and higher rates.

From April 2023 onwards, the levy will also apply to those above state pension age who are still in employment.

The increase will not apply to class 2 NIC (the flat rate paid by the self-employed with profits above the small profits threshold, which is currently £6,515 per year) or class 3 NIC (voluntary contributions for taxpayers to fill in gaps in their contributions’ records to qualify for benefits). So, the lowest paid self-employed and people making voluntary contributions will be protected.

Employers will pay the levy for employees earning above the secondary threshold of £8,840 in 2021/22. Existing NIC reliefs to support employers will apply to the levy.

Companies employing apprentices under the age of 25, all people under the age of 21, veterans and employers in freeports will not pay the Levy for these employees as long as their yearly gross earnings are less than £50,270, or £25,000 for new Freeport employees.

The levy will be administered by HMRC and collected by the current channels for NIC: pay as you earn and income tax self-assessment.

From April 2023, once HMRC’s systems are updated, the 1.25% levy will be formally separated as a ‘health and social care levy’, and NIC rates will return to their 2021/22 levels. The levy, including the temporary NIC increase in 2022, will be legislated for shortly.

Individuals earning less than the primary threshold/lower profits limit of £9,568 in 2021/22 will not pay the levy. A typical basic rate taxpayer earning £24,100 will contribute £180 in 2022/23, while a typical higher rate taxpayer earning £67,100 will contribute £715.

Additional rate taxpayers make up just 2% of individuals affected but will contribute nearly 20% of the revenue raised from individuals. The highest earning 14% will pay around half the revenues.

Dividend tax increase

Alongside the Health and Social Care Levy, the government has announced that, from 1 April 2022, there will also be a 1.25% increase in dividend tax rates: 

  • for a basic rate taxpayer, the rate will increase from 7.5% to 8.75%
  • for a higher rate taxpayer, the rate will increase from 32.5% to 33.75%
  • for an additional rate taxpayer, the rate will increase from 38.1% to 39.35%.

The £2,000 dividend allowance will remain.

Dividend tax is charged on taxable dividend income an individual receives that falls outside of the personal allowance (£12,570 in 2021/22) and the dividend allowance (£2,000 in 2021/22). Taxable dividend income excludes, for example, dividends on assets held in ISAs.

Affected basic rate taxpayers are expected to pay, on average, an additional £150 on their dividend income in 2022/23. Affected higher rate taxpayers are expected to pay, on average, an additional £403 on their dividend income in 2022/23. Additional and higher rate taxpayers are expected to contribute over 70% of the revenue from this increase in 2022/23.

There will be concerns over the timing and impact on businesses (employment and investment) but the main longer-term concern is that we see another ‘new tax’ entering an already complicated system. ACCA has called for simplification of the tax system and questions another tax into an already complex system.

Members wishing to feedback any concerns or impact on clients can email ACCA at