Some National Insurance contributions (NICs) paid by both employed and self-employed workers will rise by 1.25 percentage points at the start of the next tax year, the government has announced. Dividend tax rates will also rise by the same amount from April 2022, with the extra cash raised going towards paying the ever-increasing cost of social care.
Speaking in the House of Commons, Prime Minister Boris Johnson revealed that, from 2023, the exact amount employees pay towards health and social care will be stated on their pay slips. All working adults will pay the new levy, unlike other NI contributions, will be paid by all workers over the state pension age.
NICs rise impacts employed and self-employed
The hike will apply to Class 1 NICs paid by employees and Class 4 NICs paid by self-employed workers. It will be administered by HMRC and collected via the current channels for NICs: PAYE and income tax self-assessment.
People earning £20,000 a year will pay an extra £130 a year; those on £30,000 an additional £255. Taxpayers earning £50,000 will pay an extra £505 each year, while those on £80k a year will be forking out an additional £808 more than they are currently paying.
For £100,000 earners, the extra NICs will be £1,130.
Class 2 self-employed NICs and Class 3 NICs, which are voluntary payments made to top-up state pension gaps, are not affected by the levy, which will not be deducted from pension income.
The table below details the current Class 1 and Class 4 NIC rates and how these will change from on the introduction of the new health and social care levy:
NICs changes detailed
|Employee Class 1 NICs|
Main rate (i) / Higher rate (ii)
|Employer Class 1 NICs||Self-Employed Class 4 NICs|
Main rate (i) / Higher rate (ii)
|NICs rates for 2021/22||12% / 2%||13.8%||9% / 2%|
|NICs rates for 2022/23||13.25% / 3.25%||15.05%||10.25% / 3.25%|
|NICs rates from 2023/24||12% / 2%||13.8%||9% / 2%|
|Health and social care levy from 2023/24||1.25%||1.25%||1.25%|
|Threshold at which NICs become payable in 2021/22||£9,568||£8,840||£9,568|
(i) For the 2021/22 tax year this applies to those who earn £9,568 to £50,270 a year.
(ii) For the 2021/22 tax year this applies to those who earn over £50,270 a year.
Limited company directors hit by dividend increase
The Prime Minister also announced that dividend tax rates will rise by 1.25 percentage points, also from April 2022. See the table below for a full breakdown of how this will change.
The government will increase the rates of dividend tax, which are payable on dividend earnings of above £2,000 a year. Taxable dividend income excludes dividends earned from investments held in ISAs.
See the table below for the full details:
Dividend tax rates and changes from 2022
|Basic rate taxpayers||Higher rate taxpayers||Additional rate taxpayers|
|Dividend tax rates for 2021/22||7.5%||32.5%||38.1%|
|Dividend tax rates from 2022/23||8.75%||33.75%||39.35%|
Social Care Levy to fund NHS backlog
Money raised by the tax increases will be ring-fenced to help the NHS clear the backlog of treatments delayed because of the pandemic, as well as resolving long-standing issues around care costs.
In addition, from October 2023, people in England with assets under £20,000 will have their care costs fully covered by the state, while those with between £20,000 and £100,000 will be expected to contribute towards the cost of their care, although they will also receive state support. Those with more than £100,000 worth of assets, including property, won’t receive state support.
There will also be a new £86,000 cap on the amount anyone in England will need to spend on their personal care over their lifetime. Currently, anyone with assets worth more than £23,250 has to fund their care in full.
Care costs are a devolved issue, with the governments in Northern Ireland, Scotland and Wales setting their own rules.