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National insurance contributions to rise by 1.25% from April 2022 to fund social care costs

National insurance contributions to rise by 1.25% from April 2022 to fund social care costs

Certain national insurance contributions (NICs) paid by both employed and self-employed workers will rise by 1.25 percentage points from April 2022, Prime Minister Boris Johnson has today announced. Dividend tax rates will also rise by the same amount from the next tax year. The move is in a bid to help fund health and social care costs.

Here's what's happening: 

  • Certain NIC rates will increase by 1.25 percentage points from April 2022. From 2023, the health and social care levy element will then be separated out and the exact amount employees pay will be visible on their pay slips. It will be paid by all working adults, including workers over the state pension age – unlike other NICs.

    This increase will apply to class 1 NICs paid by employees and class 4 NICs paid by self-employed workers - see the table below for more info. It will be administered by HM Revenue & Customs and collected via the current channels for NICs: pay-as-you-earn and income tax self-assessment.  

    Downing Street says this means an employed basic rate taxpayer earning the median basic rate taxpayer’s income of £24,100/year in 2022/23 would contribute £180/year, while a higher rate taxpayer earning the median higher rate taxpayer’s income of £67,100/year in 2022/23 would pay £715/year.

    Class 2 self-employed NICs and class 3 NICs, which are voluntary payments made to top-up state pension gaps, are not impacted by the levy. The levy will also not be taken from pension income. 

  • Dividend tax rates will rise by 1.25 percentage points from April 2022. This is a tax on money given to you by a company you hold shares in, usually when it's made a profit. See the table below for a full breakdown of how this will change. 

For full info on current NICs and dividend tax rates, see our Tax Rates 2021/22 guide. You can also use our Income Tax Calculator to work out your current take home pay. 

How the health and social care levy will apply from April 2022

Most UK workers currently pay NICs to fund different parts of the state benefits system - from state pensions to health and social care and unemployment benefits. The amount of NICs you pay depends on your salary and type of employment and there are four different 'classes'. 

The table below details the current class 1 and class 4 NIC rates and how these will change from 2022 based on the new health and social care levy:

How the health and social care levy will apply from 2022

TABLE_CELL_STYLE

Employee class 1 NICs

Main rate (i) / higher rate (ii)

Employer class 1 NICs

TABLE_CELL_STYLE

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 

Health and social care levy from 2023/24

12% / 2%

1.25%

13.8%

1.25%

9% / 2%

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/yr to £50,270/yr. (ii) For the 2021/22 tax year this applies to those who earn over £50,270/yr. 

How dividend tax rates will increase from April 2022

The Government will also increase the rates of dividend tax, which are payable on dividend earnings of above £2,000/yr. See the table below for the full details.

Taxable dividend income excludes dividends earned from investments held in ISAs. 

Dividend tax rates and changes from 2022

TABLE_CELL_STYLE Basic rate taxpayers
Higher rate taxpayers Additional rate tax payers
Dividend tax rates for 2021/22
7.5%
32.5% 38.1%
Dividend tax rates from 2022/23
8.75%
33.75% 39.35%

Funds raised from the levy will be ring-fenced to help pay for the NHS and care costs

The Government says funds raised by these tax increases will be legally ring-fenced to help the NHS clear backlogs, as well as resolving long-standing issues around care costs across the UK. 

In addition, the Government has confirmed that from October 2023, anyone 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 their costs but will also receive state support. Anyone with more than £100,000 worth of assets, including property, won't receive state support.

The Government will also introduce 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, so the respective governments in Northern Ireland, Scotland and Wales can set their own rules. Here's what they've said: 

  • In Northern Ireland, a public consultation on reforming social care is set to launch later this year. Currently, no-one over the age of 75 pays for home care, while residential care is means-tested based on your assets, including savings and property. If you have assets of more than £23,250 you are responsible for the full cost of care, but if you have assets of under £14,250, this will be ignored when calculating how much you have to pay towards care. Between these caps there is a scale of how much you are expected to contribute.
  • In Scotland, the Government says there are no immediate plans to reform its own social care arrangements. Here, the Government provides free means-tested at home care. People get also get free residential care if they have savings or assets of less than £18,000. Those with savings and assets of between £18,000 and £28,750 have to fund part of their care, and those with more than that have to fund their own care, apart from a £193.50/week contribution towards personal care and £87.10/week allowance towards nursing care.
  • In Wales, the Government says it has no plans to change its current social care caps and eligibility criteria for state help. Here, the weekly contribution rate for non-residential social care is capped at £100/week, with those on high incomes or with assets worth over £24,000 (excluding their home) likely to pay up to the cap. Those with assets worth £50,000 or more have to fund all residential care in Wales.

Additional reporting by the Press Association.

 

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