Less than a month until increased National Insurance and Dividend Tax rates!

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As you may be aware, there will be increases to National Insurance (NI) rates and dividend tax rates from 1 April 2022.

National Insurance

The NI increases will apply to both Employees’ NI and Employer’s NI, so your employees will see their net pay reduce slightly, while employers will see their NI liabilities increase.

The Employee National Insurance rate of 12% for earnings between £9,880 and £50,000 will increase to 13.25%, and the employee National Insurance rate of 2% for earnings above £50,000 will increase to 3.25%.

  • For an employee earning £20k per year, the increased NI rates will result in lower pay of £130 over the year.
  • For an employee earning £30k per year, the increased NI rates will result in lower pay of £255 over the year.
  • For an employee earning £50k per year, the increased NI rates will result in lower pay of £505 over the year.

The Employer National Insurance rate will increase from 13.8% to 14.05%.

National Insurance rates for self-employed individuals will also rise, from 9% at the ‘basic rate’ and 2% at the ‘higher rate’ to 10.25% / 3.25%.

Dividends

The current dividend tax rate of 7.5% for dividends taxed at the ‘basic rate’ will increase to 8.75%, and the current dividend tax rate of 32.5% for dividends taxed at the ‘higher rate’ will increase to 33.75%.

  • For a director currently taking an annual salary of £8,832 and dividends of £40k, the related tax liability will increase by £428
  • For a director currently taking an annual salary of £8,832 and dividends of £90k, the related tax liability will increase by 1.25%

Please get in touch if you would like any additional information relating to these tax and NI increases.