An update on tax and NIC changes from April 2022

Knowledge is power when it comes to cost management for business owners - an update on tax and NIC changes from April 2022.

The rates of NIC and dividend tax are to be increased from April 2022 to help fund the NHS, including the impact of the pandemic, and the gap in social care costs. 

As well as the increase in the standard wage bill, the overall cost of other payments made to employees (such as bonuses) will also increase. In addition, dividend returns to shareholders above the tax-exempt threshold will be impacted

The article below provides an overview of the increases in respect of both the dividend tax rate as well as the Health and Social Care Levy and suggested actions. 

What to watch out for as a business owner/shareholder

From 6 April 2022, the rate of tax that shareholders pay on their dividend income is set to increase by 1.25% as part of a package of measures being introduced by the Government to fund the costs of social care and the NHS.

The new dividend tax rates from 6 April 2022 are as follows: 

Tax band

Current rates

Rates from April 2022

Basic rate 

7.5%

8.75%

Higher rate

32.5%

33.75%

Additional rate

38.1%

39.35%

Employees, employers, and the self-employed will also pay more from 6 April 2022 with National Insurance Contributions (NICs) on earned income set to rise by 1.25% from April 2022. 

The effects of the increase can be shown as follows:

Salary

Current yearly NIC payment 

Increase from April 2022

£50,000

£4,851

£464

£100,000

£5,878

£1,090

£150,000

£6,878

£1,714

From April 2023, once HMRC's systems are updated, the 1.25% Health and Social Care Levy will be formally separated out and will also apply to individuals working above State Pension age and NIC rates will return to their 2021/22 levels.

If you are a business owner or hold shares within a company, now is the time to consider whether to accelerate your dividend and/or salary/bonus payments to the current tax year and benefit from the current, lower, dividend tax and NIC rates. It’s important to note that this will also accelerate the due date for tax payments by 12 months.

Alternatively, you might also consider deferring the payment of any large salaries/bonuses until 6 April 2023, when the Corporation Tax relief available on the payment of any salaries/bonuses and employers’ NIC due on these payments will increase from the current rate of 19% to 25%.

If you have not used all of your reliefs, make use of the tax-free dividend allowance pre-5 April. The dividend allowance remains frozen at £2,000.

ISA income and gains within an ISA continue to be tax-free so you should ensure that you fully utilise your £20,000 annual ISA allowance where possible.

Reward Strategy planning for your employees

  • Given the additional costs related to the increased NIC from April 2022, employers may also want to consider reviewing their benefits offerings as a result of these changes. Areas to consider may include the following:  implementing a salary sacrifice arrangement for pension contributions which will generate savings for both the employer and employee
  • Implementing a salary sacrifice arrangement for electric vehicles which will help reduce the organisations carbon footprint, improve its ESG credentials, facilitate the recruitment and retention of staff as well as saving the organisation money
  • Reviewing the underlying cost of benefits to establish whether savings can be made (e.g. changing an existing private medical/dental insurance provider or mobile phone provider)
  • Reviewing the benefits and expenses included in the organisation’s Pay As You Earn Settlement Agreement to ensure all exemptions are being fully utilised
  • Making wider use of benefits exempt from NIC (e.g. annual medical check-ups, eye tests, trivial benefits, and workplace parking)

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If you have any questions regarding the above, please get in touch with us using the contact form below. 

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