- 14th September 2021
- Posted by: Edward Kirkby
- Category: Business
Boris Johnson has announced today a 1.25% rise in National Insurance beginning April 2022, as well as a 1.25% increase in tax on share dividends. These increases will be introduced in order to raise £12bn a year to fund the government’s social care plan; this being:
- Anyone with assets of less than £20,000 will have their social care costs fully covered by the government,
- Anyone with assets worth between £20,000 and £100,000 will receive some means-tested state support
- No one will have to pay more than £86,000 for care across their lifetime.
The government also plans to use these funds to increase hospital capacity for 9 million more appointments, scans and operations, easing the covid induced backlog of waiting lists and delayed appointments. The Prime Minister also promised that the NHS would be able to assist 30% more elective patients than it could pre-pandemic.
The National Insurance increase will appear as a Health & Social Care levy on payslips from 2023 onwards. To put the increase into numbers, someone with an annual salary of £50,000 currently pays £4,851 annually in NI, following the recently announced increase they would pay an additional £505 a year.
For entrepreneurs who make an income from dividends, these announcements may be understandably worrying. The recent cut in the tax-free dividend allowance from £5000 to £2000 in 2018, compounded with the fact that these people could not get access to a lot of covid financial support from the government means that owning and investing in businesses is becoming a less attractive means of income. This means that there could be shift towards more tax efficient ways to make money. It is, however, calculated that the highest 14% of individuals will take the burden of around half of the revenue from the health and social care levy, so the effect on small business owners may not be so severe.
One of the criticisms of the rise in National Insurance contributions become marginally less the more you earn after £50,000 compared to income tax. This means that, proportionally, the increase will have less of an effect on the higher earners, even though they will still cover a lot of what the so-called health and social care levy is trying to raise.
The NHS was arguably in desperate need for investment, but the source of the investment it will now be getting raises some questions. Small business owners will face higher National Insurance bills and less access to income through dividends thanks to the higher taxes soon to be imposed. It could mean significant impact to the post-pandemic economic recovery, with directors hit with the double blow of national insurance hikes and the increased tax on dividends.
For any questions on the National Insurance increase please do not hesitate to get in touch.