National Insurance Contributions (NICs) and dividend tax rates will rise in April 2022 to fund a new health and social care package.
The increase will become permanent from 6 April 2023 when it will become a separate tax: the Health and Social Care Levy. At that point, National Insurance Contribution rates will revert to current levels.
The temporary increase will not apply to workers over state pension age, who are currently exempt from NICs. However, they will be liable for the Levy.
Who does the increase apply to?
From 6 April 2022, NICs will increase by 1.25% for:
- employees (Class 1 contributions)
- the self-employed (Class 4 contributions)
- employers (Class 1, 1A and 1B secondary contributions).
Dividend rate increase
Also from April 2022, new, higher dividend rates will apply as follows:
- 8.75% for basic rate taxpayers
- 33.75% for higher rate taxpayers
- 39.35% for additional rate taxpayers.
These measures apply to all the UK and have particular impact on higher earners in Scotland.
Why are these changes happening?
The proposals bring major change to the way social care is funded in England. The intention is that, from October 2023, no eligible person starting adult social care should contribute more than £86,000 over their lifetime. Where assets are valued less than £20,000, contributions may be required from income, but not savings or the value of the home. Means-tested support will be available where assets are worth £20,000 to £100,000. Social care is funded differently in other parts of the UK.