Helping you prosper

National insurance (NI) raised sky high

The pre-leak approach involved only a leaking of the NI element of the proposal. This gave a few days for commentators and journalists to criticise it for targeting the young but not the old and the workers but not investors before Boris delivered the detail that there was a corresponding dividend tax increase and that the levy would be paid by all wage earners, regardless of age.

So what exactly was announced?

 

 

Currently

Apr-22

Apr-23

‘Older’* employee

0%

0%

1.25%

‘Younger’* employee

12%

13.25%

Same as Apr-22 but with the 1.25% ringfenced as a standalone levy

Employer

13.8%

15.05%

Recipient of dividend

7.5% or 32.5% or 38.1%

8.75% or 33.75% or 39.35%

Same as Apr-22

*denotes workers above or below state pension age

Incidentally, April 2023 will also see an increase in rates of corporation tax which is likely to be felt by owner-managers of small business who currently prefer receiving dividends to drawing a salary.

The tax proposals will be more fully detailed at the budget, announced for 27 October, before becoming law as part of next year’s Finance Act. There’s plenty of time between now and then for the tweaking of that detail, either as a second string to the ‘pre-leak’ political game or by way of consultation or debate as the Bill works its way through Parliament.

For example, no mention in the publication of Class 1A NI which is paid on benefits such as company cars. With generous up front corporation tax relief and low personal taxes, fully electric vehicles might become just that little bit more attractive to owner-managers and other employees when this measure takes effect.

The takeaway message for readers can only be that this is a measure likely to lead to more tax becoming payable and with so much COVID support needing to be paid for, it isn’t likely to be the last such increase. Also, that the headlines suggest this policy will widen the tax differentiation between employees and non-employees rather than narrowing it, something of a backwards step after a number of years movement towards parity.

Those with the ability to choose how they derive their income might well be prompted to think about their options. Is an acceleration of earnings sensible? Are dividends or salaries the best answer? Is it the right time to get a company (electric) car? How do pensions fit in to the equation?

Those who employ others will need to consider this 1.25% increase to their payroll bill and how that impacts their business. And those with a mix of on and off payroll workers will find this yet another cog in the machine.

The answers won’t be universal and individual circumstances will need considering.

The next step

To discuss how this might impact your position, please contact your usual UHY adviser. 

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