Increases in National Insurance thresholds and Dividend tax rates

Increases in National Insurance thresholds and Dividend tax rates

With increases to both National Insurance and Dividend Tax Rates coming into effect this month, there may be some confusion surrounding what it means for you and what, if any, changes you need to consider making.

Michael Webb, Assistant Tax Manager, provides a useful summary of the changes you need to be aware of.

2022-23 National Insurance

The Chancellor has recently announced that the level before which employees (including directors) start to pay National Insurance is increasing in July 2022 for 2022-23 which you may be able to take advantage of.

The secondary threshold, the level at which Employers pay National Insurance however, will not change. Please see below the relevant thresholds for the tax year 2022-23:

Unfortunately, there is not a “one size fits all” answer as to the optimum position as there are many other factors to consider, including:

• Level of other non-savings income (e.g. employment income/benefits in kind)
• All other sources of income
• Available personal allowance
• Eligibility for the company to claim the Employment Allowance (£5,000 for 2022-23)

There is no requirement to increase your salary, you will receive a state pension credit as long as your salary remains over the lower earnings limit – for 2022-23 this is £6,396 as above. However, salary is a tax deductible expense from your company profits, therefore a saving of (currently) 19% will be received on the salaries and Employer’s National Insurance incurred.

2022-23 Dividend tax rates

The Chancellor has also increased the dividend tax rates, in line with the rise in the National Insurance rates, by 1.25% to be spent on the NHS & other health and social care in the UK. The new rates are as below and as you can see, are still lower than the non-savings income. We have included the prior year rates for your information.

How can Haines Watts help?

We advise clients with a broad range of payroll and dividend related matters throughout Swindon and the South West.

If you would like to have a conversation to understand the complexities of the above changes and look to understand the most beneficial package for you is, please get in touch with your usual Haines Watts contact.