by Affiliate Partner, GoSimpleTax
From 6 April 2022, National Insurance contributions (NICs) for employees and employers will rise by 1.25 percentage points, as part of a new annual £12bn healthcare levy announced by Prime Minister, Boris Johnson.
Some of the money (reportedly £5.4bn over the next three years) will be used to improve the UK social care system, according to the government.
From 2023, the additional payment will become a separate tax on earned income called the Health and Social Care Levy, which will be calculated in the same way as National Insurance and detailed on payslips.
So what will it mean for sole traders?
Critics have been quick to point out that the increase in NICs will disproportionately affect lower earners and sole traders.
Sole traders pay two types of National Insurance: Class 2 (£3.05 a week) if their profits are £6,515 or more a year; and Class 4 if their profits are £9,569 or more a year.
Sole traders pay 9% Class 4 NICs on profits between £9,568 and £50,270 and then 2% on anything they earn above that. The changes when introduced will mean they will now pay 10.25% and 3.25% respectively on their profits.
What about employees?
According to government website GOV.uk:
· If you earn £20,000 a year, you currently pay £1,251 a year in NICs, which will increase by £130 a year from April 2022.
· If you earn £30,000 a year, you currently pay £2,451 a year in NICs, which will increase by £255 a year from April 2022.
· If you earn £50,000 a year, you currently pay £4,851 a year in NICs, which will increase by £505 a year from April 2022.
· If you earn £80,000 a year, you currently pay £5,479 a year in NICs, which will increase by £880 a year from April 2022.
· If you earn £100,000 a year, you currently pay £5,878 a year in NICs, which will increase by £1,130 a year from April 2022.
Other tax changes announced
As well as having to pay higher NICs, directors of small limited companies who receive part of their income from dividend payments will pay more tax.
From April 2022, tax on dividend income will increase by 1.25%. So, after the £2,000 allowance, those in the basic rate for Income Tax will pay 8.75% on dividend payments (currently it’s 7.5%), while those in the higher rate Income Tax band will pay 33.75% (currently 32.5%) and those in the additional rate will pay 39.35% (currently 38.1%).
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