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The government has implemented increases in National Insurance Contributions and Dividend Taxes to provide greater NHS and social care services.
The increases are part of the government’s plan to compensate for the effects of the coronavirus epidemic and close funding shortfalls that have been discovered. The price hikes will begin in April 2022.
Contributions to National Insurance are being increased.
The government has implemented a new health and social care fee (the levy). Employees, employers who pay Class 1 (A and B), National Insurance Contributions (NICs), and self-employed persons who pay Class 4 NICs will all be subject to the tax. The levy will take effect in April 2022. Employed or self-employed people over the age of 65 will not be affected by the April 2022 amendments, but they will be required to pay the levy starting in April 2023.
In future years, the levy will apply to earnings/profits above the respective National Insurance thresholds, as determined by the government and announced by the Chancellor of the Exchequer in the budget each year.
Increase in dividend taxation
Dividend tax is levied on taxable dividend income that exceeds the annual personal tax-free allowance (£12,570 in the 202/22 tax year) and the dividend allowance (£2,000 in the 2021/22 tax year). Dividends earned in an Individual Savings Account (ISA) are not subject to dividend taxation.
All dividend tax rates will rise by 1.25 per cent beginning in April 2022. This change will be implemented throughout the United Kingdom.
What does this entail for FinConcile customers?
FinConcile will continue to provide clients with the best tax-efficient advice and outsourced accounting services LLC based on their circumstances. Many directors of limited companies receive only a small salary and will be unaffected by changes in national insurance rates if their compensation does not exceed a certain threshold.
The increase in dividend tax means that where earnings exceed the personal and dividend tax-free allowances, more tax will be paid. While the government has stated that these tax-free allowances will be frozen until 2026, the situation may change if the government is forced to raise taxes in the future.