What does the latest tax hike mean for you?

A few months ago we saw the UK government change the corporation tax rate for many firms from 19% to 25%.


Now in a fresh round of hikes individuals are in the crosshairs.


From April 2022 National Insurance will increase by 1.25% 


The extra money is being called a “health and social care levy” and we have been told that once HMRC’s computer systems are updated you’ll see this line on your payslip.


(I had to chuckle when I found out this computer update might not happen until 2024…classic HMRC. Expect your first payslip to have a spelling error too!)


Anyway, let’s get serious…


What sort of money are we talking about?


Let’s look at a few examples:


If you’re earning £20,000 per year your current NIC bill is £1,252.

After the rise, you’ll pay £130 more bringing the bill to £1,382


Let’s say you’re earning £50,000 per year. Under current rates, you pay £4,852 in national insurance. That rises by £505 per year to £5,357.


Finally, if you’re earning £100k you’re currently paying £5,879 in NIC contributions. That rises to £7,009… an uplift of £1,130


As always seems to be the case, those sitting right in the middle have it worse when you look at the relative increases. (Percentage of income after tax rises)


£20,000 NIC increases by 6.91%

£50,000 NIC increases by 10.71%

£100,000 NIC increases by 7.01%


Note that class 1 contributions (payable if you are employed) currently stand at 

12% from £797 to £4,189 per month

2% above £4,189 per month 


So you might well be sitting there thinking 


“aha poor employees, I run my own business and pay myself a small salary topped up with dividends, this isn’t going to impact me, I knew running my own business was a good idea!”


Hold your horses… bad news I’m afraid. 


The government knows your game and has increased dividend tax by 1.25% too


Dividend tax will rise from 7.5% to 8.75% for anyone earning between £12,571 and £50,270

And will rise to 33.75% from 32.5% for higher rate tax payers. (£50,271 – £150,000)


What does this mean for you?


Apart from having to pay the extra tax! Nothing… if you’re a client we’ll compute your tax liability for you when the time comes. And we’ll always be on the lookout for ways to minimise your tax liability so you don’t pay a penny more than you need to.