Earlier today, the PM announced a new health and social care tax to pay for reforms across the care sector.
The bottom line is a rise in National Insurance Contributions (NIC) of 1.25% from April 2022 and a 1.25% increase on tax paid on dividends.
Although we had been warned that tax rises were on their way, this is somewhat of a double-hit as the NIC increases will impact on employers and employees (with each party paying an extra 1.25%).
The initial 1.25% rise in April 2022 will begin as an increase in NIC, but from 2023 will become a separate tax on earned income – calculated in the same way as NIC and a separate line on a payslip.
The increase of tax on dividends by 1.25% will also come into force in April 2022, so at least we have a few months of notice, but for business owners and directors, the increases will be hard to avoid and, potentially, difficult to swallow.
Boris admitted that the new tax was contrary to his manifesto promise and although the government predicts it will be worth £12bn a year – it’s still a drop in the ocean to what’s needed to cover the reform costs.
As ever, the devil will be in the detail – as soon as more details are available, we will provide a further update.
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