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September 7th 2021

Social care levy and other tax rises announced today

The government plans to increase National Insurance (NIC) rates by 1.25% across the UK, effective from April 2022 and applicable to employee and employer contributions. The additional charge is being branded as a "health and social care levy" but in effect it is NIC.

The announcement is a breach of the Conservative's manifesto commitment to a "triple lock" on Income Tax, NIC and VAT.

In a break from the current system, working people who have reached the State Pension age will (from April 2023) also be liable to pay the levy; currently individuals stop paying NIC once they reach the State Pension age.

Existing NIC reliefs to support employers are expected to apply to the levy, including the reliefs for people under age 21, apprentices under age 25, and of course there is also the £4k Employment Allowance. The Federation of Small Businesses is already calling for an increase in the Employment Allowance to support small business owners and protect jobs.

The rates of taxation applicable to dividends are also expected to increase by 1.25% from April 2022, further punishing the many small business owners who reward themselves primarily in dividends. The top rate of income tax on dividend income will therefore rise to 39.35% - nearly twice the 20% top rate of Capital Gains Tax applicable to most assets. There is a clear incentive for individuals with material shareholdings in companies to try to structure their returns as capital, rather than income.

The work and pensions secretary has also announced that the pensions "triple lock" is being suspended for a year, to avoid a big state pension increase next year. Pensions are now expected to rise next year by about 3%, rather than 8% had the triple lock not been suspended.

The overall tax burden as a share of national income is now reported to be at its highest level since the late 1960's.

National debt now stands at about 100% of GDP and Rishi Sunak has said that additional spending on social care must be funded by higher taxes, rather than more borrowing. Sajid Javid has warned that the current NHS waiting list of 5m people could balloon to 13m without action.

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