What Do The Government’s New Tax Reforms Mean For Family Businesses?
13th September 2021
Last week the Government unveiled a package of tax reforms as part of its plan to fund health and social care. The headline announcements include an increase of 1.25 per cent to National Insurance Contributions (NICs) and an increase in the rate of dividend tax, both of which will be effective from the start of the next tax year in April 2022.
National Insurance Contributions
Under the new plans, the Government will introduce a UK-wide 1.25 per cent Health and Social Care Levy based on National Insurance contributions (NICs). This levy will be introduced from the start of the next tax year in April 2022, when NICs for working age employees, self-employed and employers will increase by 1.25 per cent. From April 2023, the 1.25 per cent levy will be formally separated out and will also apply to individuals above the State Pension age.
The impact of the levy: for individuals on the typical basic rate of £24,100 this means an extra £180 in 2022-23 while a higher rate taxpayer earning £67,100 will contribute an additional £715.
If any of your employees are concerned about how they will be impacted, the Telegraph has published a helpful tool to calculate earnings after the increase.
In terms of what this means for businesses, the Employment Allowance for small businesses will also apply to the levy, meaning that roughly 640,000 businesses across the UK will not be affected by this new levy. The next 40 per cent of businesses will face an average increase in employer NICs bills of around £450.
Increase Dividend Tax Rates
The most notable impact for businesses will come through the 1.25 per cent increase in the rate of dividend tax from April 2022. As this tax is paid as a result of dividend income from shares, the Government’s rationale for this increase is of fairness of contribution in line with the increased contribution from employees and the self-employed.
The move will now see the basic rate rise to 8.75 per cent, with higher-rate and top-rate payers up to 33.75 and 39.35 per cent respectively. Shareholders can work out how they will be impacted using the Telegraph’s helpful tool, which you can access here.
The Government’s policy paper on funding for health and social care, including more detail on these tax changes, can be found here. It is expected that these reforms will be scored at the Budget and confirmed in the next Finance Bill.
Last week the Chancellor also announced an Autumn Budget will take place on 27th October 2021. The IFB will be submitting recommendations to HM Treasury ahead of the Budget, which will be available on the IFB website in coming weeks.
If you would like to find out more about the IFB’s policy work, please contact firstname.lastname@example.org.