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National Insurance to rise

Last week Parliament overwhelmingly voted to approve the Governments proposed National Insurance (NI) increase, to help fund health and social care. This will see an additional 1.25% added to Class 1 and Class 4 NI as well as a 1.25% Income Tax increase to dividends.

The change takes effect from 5th April 2022 and will affect working-age employees, employers and self-employed individuals. For self-employed individuals this will see Class 4 NI increase from 9% of profit to 10.25% of profit. This amount will be collected through your Tax Return and the first payment that will include this extra contribution, will be due in January 2024.

For every £10,000 worth of profit over the Lower Annual Profit limit, £9,568 in 2021/22, you will pay an additional £125. We recommend that you bear this rise in mind, in your tax planning, to ensure that you are putting enough to one side to cover your tax liabilities as they fall due.

From April 2023, NI will return to the current rate and the 1.25% increase will be stripped back out of the general NI rate and charged as a separate levy, specifically allocated to health and social care. From that point, those who are still working above the State Pension age will be liable to pay the levy on earned income. However, there is significantly less guidance currently available on this levy and we will update you as more is released.

Looking ahead, the Autumn Budget is due to take place on the 27th October and we suspect there will be further changes to come. More on this at the time of the Budget.