Double-digit tax increases to fund the latest social care reforms will have a ripple effect on taxpayers.
When the Chancellor announces tax rises that are measured in double-digit billions, normally you can assume he is presenting a Budget. That was not the case in September, when Rishi Sunak set out measures that will bring a net £12 billion a year into the Treasury’s coffers from next April. That sum is about the same amount as would be raised by increasing basic rate income tax from 20% to 22%. Indeed, some experts suggested that is what the Chancellor should have done. Instead, he took a politically safer route:
- In 2022/23, all the main and higher rates of National Insurance Contributions (NICs) will rise by 1.25%. For example, if you are an employee under age 66 earning more than £50,270, then in the next tax year you will pay NICs at the rate of 13.25% (12.0% currently) on your earnings between £9,568 and £50,270 and 3.25% (2% currently) above that level. Your employer will also pay NICs on your earnings above £8,840 of 15.05% (currently 13.8%). If you earn £60,000 a year, your NICs bill will rise by £630 – about £52.50 a month.
- In 2023/24, the NICs rates will drop back to the current level and to capture the extra 1.25%, a new, separate Health and Social Care Levy will be introduced. The net effect of this will be the same as the 2022/23 NICs increase, but with one exception: the new levy will also apply to the earnings of anyone (employed and self-employed) above State Pension Age (66 currently).
- From 2022/23, 1.25% will be added to the tax rates that apply to dividends once the £2,000 dividend allowance is exhausted. Consequently, the top tax rate on dividends will rise to an awkward 39.35%.
The changes could have major impacts on your financial planning, particularly if you run your own business.
If you are interested in discussing how the above may affect you personally with one of our experienced financial planners at FAS, please get in touch here.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.
