The UK Government has announced on 7 September that, from April 2022 the UK will introduce a 1.25% Health and Social Levy, based on national insurance contributions (NIC) ringfenced to fund the investment in health and social care.
The levy will apply to the same population and income as class 1 (employee, employer) and class 4 (self-employed, including partners) NIC, and to the main and higher rates.
Employers will pay the levy for employees earning above the secondary threshold of £8,840 in 2021/22. Existing NIC reliefs to support employers will apply to the levy.
Dividend tax increase
Alongside the Health and Social Care Levy, the government has announced that, from 1 April 2022, there will also be a 1.25% increase in dividend tax rates:
- for a basic rate taxpayer, the rate will increase from 7.5% to 8.75%
- for a higher rate taxpayer, the rate will increase from 32.5% to 33.75%
- for an additional rate taxpayer, the rate will increase from 38.1% to 39.35%.
The £2,000 dividend allowance will remain.
Dividend tax is charged on taxable dividend income an individual receives that falls outside of the personal allowance (£12,570 in 2021/22) and the dividend allowance (£2,000 in 2021/22). Taxable dividend income excludes, for example, dividends on assets held in ISAs.
Affected basic rate taxpayers are expected to pay, on average, an additional £150 on their dividend income in 2022/23. Affected higher rate taxpayers are expected to pay, on average, an additional £403 on their dividend income in 2022/23. Additional and higher rate taxpayers are expected to contribute over 70% of the revenue from this increase in 2022/23.
There will be concerns over the timing and impact on businesses (employment and investment) but the main longer-term concern is that we see another ‘new tax’ entering an already complicated system. ACCA has called for simplification of the tax system and questions another tax into an already complex system.