Increases to Dividend Tax and National Insurance rates

The increases have been put in place to fund the NHS, including the impact of the pandemic and to help fund the gap in social care costs.

Dividends – what is changing?

Just like in previous years, there are not any plans to change the ‘dividend allowance’ on the first £2,000 of dividend income that you receive which remains the same as when it was set in 2018. This means that the dividends which fall within this allowance are not charged any tax.

The 2022 increase in dividend tax rates is the first increase since April 2016, making this the first increase in 6 years

The table below shows how much dividend tax is currently paid and the rates for the 2022-23 tax year.

Income Tax Band	Dividend tax rate 2021-22	Dividend tax rate 2022-23
Basic rate	7.5%	8.75%
Higher rate	32.5%	33.75%
Additional rate	38.1%	39.35%

National Insurance Contributions (NIC) – What is changing?

From April 2022, there will be a temporary 1.25% increase in NIC contributions.

From April 2023, these increases will be legislated as ‘health and social’ care (H&SC) levy and NIC rates will return to 2021/22 levels.

The H&SC will also extend to those who are still working who are above state pension age, who are currently exempt from NIC.

The changes will affect employees and self-employed individuals earning over the lower profits limit which is currently £9,568.

The table below explains the changes.

NIC	2021/22 Current NIC threshold	2021/22 Current NIC rate *	2022/23 NIC rates*	2023/24 NIC rates and H&SC Levy *
Employees (Class 1)	£9,568	12% / 2%	13.25% / 3.25%	12% / 2% + 1.25% (H&SC)
Employers (Class 1)	£8,840	13.8%	15.05%	13.8% + 1.25% (H&SC)
Self-employed (Class 4)	£9,568	9% / 2%	10.25% / 3.25%	9% / 2% + 1.25% (H&SC)

*For 2021/22 the main rate Is for earnings between £9568 and £50,270, the higher rate applies for earnings over £50,270.

If you have any questions or would like any advice on either of these changes, please contact us here at RIFT Accounting.