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It is proposed that there will be a 1.25% rise in National Insurance Contributions (NICs) from April 2022 paid by both employers and workers and will then become a separate tax on earned income from 2023 - calculated in the same way as NIC and appearing on an employee's payslip.
Note that the 1.25% increase applies to the Class 4 contributions paid by the self-employed on their profits as well as the Class 1 contributions paid by employees increasing the rates to 10.25% and 13.25%. The employers Class 1 rate will increase from 12.8% to 14.05% however many small businesses are able to set off a £4,000 employment allowance against their employers NIC liability.
Many workers operating through personal service companies to whom the new “off-payroll” working rules apply will also be caught by the proposed measures.
The 1.25% additional levy doesn’t just apply to national insurance contributions, it is proposed that the income from share dividends, earned by those who own shares in companies, will also see a 1.25% tax increase. This would mean that after the £2,000 tax free dividend allowance the rate of tax would be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for those with income in excess of £150,000 a year.
Details of the proposals are set out in the following document: 6.7688_CO_Command paper cover_060921 (publishing.service.gov.uk)
06 Feb 2024
Government borrowing fell to £7.8 billion in December 2023 giving Chancellor Jeremy Hunt more scope to make the tax cuts he has hinted at in the Spring Budget.
Tax cut promises may need to be scrapped as a result of the UK being in an 'unfortunate economic and fiscal bind', the Institute for Fiscal Studies (IFS) has warned.
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