The Prime Minister has reaffirmed his commitment to overhauling the health and social care sector. Yet having pledged this would not be funded by a hike in taxes, he has announced a 1.25% health and social care levy to fund the much-needed investment.

What is National Insurance?

National Insurance (NI) is a tax paid by both the self-employed and those in employment which funds social care and state pensions. The amount and how you pay depends on your employment status and how much you earn.

For those who are employed - Class 1 NI Contributions

Current rates for 2021/22:

0% up to £9,568
12% from £9,568 to £50,270
2% above £50,270

This is taken off at source - i.e. before you receive your wages.

For those who are self-employed - Class 4 NI Contributions (depending on profits)

0% up to £9,568
9% from £9,568 to £50,270
2% above £50,270

This is generally paid through Self Assessment.

New rates from April 2022

Following today's announcement, the rates will change as follows:

For those who are employed:

0% up to £9,568
13.25% from £9,568 to £50,270
3.25% above £50,270

For those who are self employed:

0% up to £9,568
10.25% from £9,568 to £50,270
3.25% above £50,270

For employers:

The current level of contribution of 13.8% will increase to 15.05%.

What does this mean for you?

Whether you are employed or self-employed, you will be paying the same additional costs, depending on your level of income and we have included some examples below:

• £20,000 - £130 (£11 monthly)
• £30,000 - £255 (£21 monthly)
• £50,000 -  £505 (£42 monthly)
• £70,000 - £755 (£63 monthly)
• £100,000 - £1,130 (£94 monthly)

Dividend income tax from April 2022

From April next year, dividend income tax will also increase by 1.25% as an attempt to redress the imbalance in the Government's proposals as dividend income is not chargeable to National Insurance. However, this still represents a more preferential rate than employment income tax - which is why it is such a popular mechanism to help reduce tax liabilities.

Currently the first £2,000 of dividends is tax-free, so based on the current rates and assuming the dividend free allowance is set to continue, an example of a low salary and high-dividend remuneration structure is outlined below:

Example: Gross remuneration of £70,000

Based on:

• current dividend tax rates of 7.5% (basic rate), 32.5% (higher rate) and 38.1% (additional rate)
• new dividend tax rates of 8.75% (basic rate), 33.75% (higher rate) and 39.35% (additional rate)
• no pension contribution
• full personal allowance of £12,570 used

Take home pay under the current rates: £60,910
Take home pay under the new rates: £60,217
National Insurance Contribution: £0 on salaried element
Levy fee: £693

Therefore, a low salary and high-dividend remuneration structure remains beneficial.

Health and Social Care Levy - April 2023

From April 2023, the National Insurance rates will return to their current level, and the levy will be charged separately, with proceeds ringfenced specifically for health and social care investment.

At this point, anyone working of pensionable age will also be required to pay the 1.25% levy separately, but they will not contribute towards National Insurance.

We are here to help

We are here to help in any way we can. Please contact us on 0121 693 5000 (Solihull Office), 01527 833124 (Bromsgrove Office) or 01675 466344 (Coleshill Office) for more information.