Increase in National Insurance (September 8th 2021)



National insurance contributions and dividend tax rates will increase by 1.25% across the UK from 1st April 2022. This is to pay for health and social care.

In a move that breaks the Conservative’s manifesto pledge on raising taxes, the Prime Minister has confirmed that rates of national insurance are to be increased to pay for the impact of the coronavirus pandemic on the NHS and to address the long-standing funding gap for health and social care.

From 1 April 2022, there will be a temporary 1.25% increase in class 1 (employee) and class 4 (self-employed) national insurance contributions (NIC) paid by workers, as well as a 1.25% increase in Employers NIC.

The 1.25% increase will also apply to Class 1A NIC paid by employers.

The increase will apply to employed and self-employed individuals earning above the class 1 primary threshold & class 4 lower profits limit (currently £9,568 in 2021/22). Employers will pay the additional 1.25% for employees earning above the class 1 secondary threshold (currently £8,840 in 2021/22).

Existing reliefs and allowances to cover employer’s NIC will apply to the levy so Employers will still get the £4,000 employment allowance as well as reliefs for employers of apprentices, newly employed veterans and new employees in freeports.

From April 2023, the increases will be shown separately as a “health and social care levy” with the usual NIC deduction displayed at 2021/22 levels.

From April 2023 the legislation will also extend this charge to individuals over state pension age who are in employment or self-employment.

Presently these people are exempt from paying NIC but they will have to pay this new NIC charge in the future.

The government has also announced a 1.25% increase in dividend tax rates from 1 April 2022, taking rates to: 8.75% for basic rate taxpayers (previously 7.5%), 33.75% (previously 32.5%) for higher rate taxpayers and 39.35% for additional rate taxpayers. The £2,000 dividend allowance will remain.

Under the government’s plans the amount individuals will pay towards personal care throughout their life will be capped at £86,000.

Meanwhile, individuals with assets of less than £20,000 will not make any contribution to care costs from savings or the value of their home (an increase from £14,000), and those with assets between £20,000 and £100,000 will be eligible for means-tested support.