What does the NIC and dividend tax hike mean for your business?

tax and accounting

The government’s decision to increase the national insurance and the dividend tax has had much controversy paving the way for more precise tax and accounting services. While there has been much going around with the impact of the decision on workers, the changes have a lot to do with employers costs as well. 

First, let’s look at the changes:

  • For primary and secondary class 1 NIC for employers and employees, and class 4 NIC for self-employed (a year), there’s been a 1.25% increase. Along with that, the Class 1A and Class 1B NIC rates will also rise from 1.25%, applying to certain benefits in kind and PAYE settlement agreements. The increase has been 15.05% from 13.8% for a period of one year. 
  • From April 6th, 2023, the levy of 1.25% on earnings applied on all the workers differentiating itself from the norms of NIC increase. Even if the workers have hit their pension age, it will also apply to them. 
  • The dividend tax has also increased by 1.25%. The basic taxpayers would have to pay 8.75%; the additional ratepayer would pay as high as 39.35%—the overdrawn loan account’s tax rate would rise to 22.75% from 32.5% beginning from April 2022.

The tax hike has brought quite a reaction. It has been a controversial step as the small businesses have already suffered huge losses in the pandemic months, and it would be quite challenging for them to cope with these new hike policies in taxation.

“After the huge amount of damage wrought to businesses over the last 16 months, the government cannot be serious about a strong economic recovery if it thinks hiking the jobs tax is a good idea.” – Mike Cherry (National Chairman, Federation of small businesses).

 Mike Cherry has further shared his views calling the change “extraordinary.”

If reports are to believe the pandemic has already had an impact of 126.6 billion Euros on small businesses, an additional hike can make things tougher for them. 

The headlines show it as an increase of 1.25%, but in reality, it is an additional 9% when given a more precise thought and review. For employers as well as employees, the NIC increase of 10% is viewable. 

For the self-employed, if the profit goes beyond 9,568 Euros for the year 2021/22, the class 4 national insurance will apply.

The dividend hike shall affect all self-employed and small business owners.  

In the meanwhile, many would want to bring dividend payments in the present tax year to reduce taxes, wherever possible!
FinBridge facilitates corporate accounting for small businesses through expert bookkeeping, payroll, compliance and all tax and accounting services. We ensure your small businesses succeed through our quality service and master strategies.

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