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.