Before the Autumn Budget 2021, the government announced increases in National Insurance and dividend taxes to cover some of the healthcare costs during the Covid-19 pandemic. According to the government, as the cost has already been incurred, these increases in the taxes will help to provide NHS and social care. 

Changes in tax year 2022-23

From April 2022 the rate of National Insurance contributions across all classes (except class 2 and 3) will change for one year. The amount of the contribution will increase by 1.25% which will be spent on the NHS and social care across the UK.

This increase in National Insurance contributions will apply to:

  • Class 1 (paid by employees)
  • Class 4 (paid by self-employed)
  • secondary Class 1, 1A and 1B (paid by employers).

Anybody earning less than the National Insurance Primary Threshold or Lower Profits Limit will remain unaffected. Employers will only pay on earnings above the Secondary Threshold.

This does not affect those over the State Pension age.

The dividend tax rates are also increased by 1.25% for each category of taxpayers. The rates will be:

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NI Category

2022/23

2021/22

Employee’s primary class 1 rate between primary threshold and upper earnings limit 13.25% 12.00%
Employee’s primary class 1 rate above upper earnings limit 3.25% 2.00%
Employer's secondary class 1 rate above secondary threshold 15.05% 13.80%
Class 4 rate between lower profits limit and upper profits limit 10.25% 9.00%
Class 4 rate above upper profits limit 3.25% 2.00%
     

Dividend tax rates

   
Dividend ordinary rate (for dividends within basic rate band) 8.75% 7.50%
Dividend upper rate (for dividends within higher rate band) 33.75% 32.50%
Dividend additional rate (for dividends above higher rate band) 39.35% 38.10%

Directors loan accounts s455 rate will also increase from April 2022, from 32.5% to 33.75%.

Changes in tax year 2023-24 

From April 2023, the 1.25% levy will be formally separated out to become a separate tax on earned income. National Insurance rates will return to their current (2021/22 tax year) levels.

The levy will be applicable to the same population simultaneously as the NI rates increases in 2022-23. 

Employers may be able to use existing NICs reliefs (such as employment allowance, apprenticeship supports) to cover the extra levy on their payroll costs. 

According to the government 70% of the money raised from businesses will come from the largest one per cent of businesses – those with at least 250 employees - and it expects to raise about £12bn revenue, 95% of which will be from the levy. 

The levy will be collected through Pay As You Earn and Income Tax Self-Assessment.

More details will follow once the legislation is introduced.