The blog has been updated for the Spring Statement 2022 on 23 March 2022.
The Prime Minister announced on 7 September 2021 a new 1.25% Health and Social Care Levy to fund investment in the NHS, health and social care.
The new levy aims to raise revenue for health and social care across the country. The levy is expected to raise £36 billion over three years to reform the NHS.
The Levy will be introduced from 6 April 2022. National Insurance contributions, only paid by working age employees, self-employed people and employers will increase by 1.25% and the amounts paid will be added to the existing NHS allocation. This will not affect earnings (*) of people over State Retirement Age.
From 6 April 2023, the Levy will be formally separated from National Insurance contributions. From that date, wages payslips will show a separate line for the new ‘Health and Social Care Levy’. Furthermore, the Levy will also apply to the earnings (*) of individuals working above State Pension age. National Insurance contribution rates will then return to their 2021-22 levels. Receipts from the Levy will go directly towards spending on health and social care.
(*) Earnings relate to amounts from wages and salaries, from employment, as well as profits from self-employment.
Employees’ and employers’ National Insurance
Employee’s National Insurance will increase from 12% to 13.25% on weekly salary between £242 and £967 (#) (these are 2022-23 rates after Spring Statement 2022)
Employer’s National Insurance will increase from 13.8% to 15.05% on weekly salary between £175 and £967 ($) (these are 2022-23 rates) and from 2% to 3.25% for employees’ salary over £967 (#).
(#) monthly amounts are £823 / £1,048 (+) to £4,189 for employee’s National Insurance
($) monthly amounts are £758 to £4,189 for employer’s National Insurance
(+) £823 to 5 July 2022 and £1,048 thereafter after Spring Statement 2022. This new threshold for 2022-23 will be £11,908 i.e. 13/52 x £9,880 plus 39/52 x £12,570.
Self-employed (but not profits generated through a limited company)
The rate of Class 4 National Insurance, paid on profits between £12,570 (+) and £50,270, will increase from 9% to 10.25% together with an increase from 2% to 3.25% on profits over £50,270. The amount of Class 2 National Insurance, paid by the self-employed, will not be affected by the change of rules.
Dividends
National Insurance is not paid on dividends. However, there is a separate tax payable on dividends.
If you received dividend income over £2,000 then the rate of tax you pay on those dividends will increase from 7.5% to 8.75%, or if you are a higher rate taxpayer the tax rate will increase from 32.5% to 33.75%. If your annual dividend income is below £2,000 you will pay no tax on any of the dividend income, even if you are a higher rate taxpayer.
As dividends are not subject to National Insurance, the increase of 1.25%, from 6 April 2022, will not change again on 6 April 2023.
The government says that "Due to a combination of the £2,000 tax-free dividend allowance and the personal allowance, around 60% of individuals with dividend income outside of ISAs are not expected to pay dividend tax and are not expected to be affected in 2022-23."
Business owners may therefore considering maximising their company dividends before 5 April 2022 and may wish to deferred higher dividends for three years, when the new levy is due to end.
National Insurance summary (for 2022-23 only)
Type of NIC | Paid by | Effect | More from HMRC |
Class 1 | Employees and employers | increases by 1.25% | |
Class 2 | Self-employed | not affected | |
Class 3 | Voluntary contributions | not affected | |
Class 4 | Self-employed | increases by 1.25% |
For more on National Insurance by H M Revenue and Customs.
National Insurance has never been paid, and will continue not to be paid, on private and state pension income. This also applies to the new levy.
For a more detailed article on the National Insurance and dividend rates to increase please read our earlier blog article.