Changes to staff costs and dividend rates April 2022
May 2022
In September 2021 the UK government followed up on its pledge to fix the crisis in social care by announcing changes to taxation. This shift in UK tax policy represents a major deviation and has an impact on businesses of all sizes.
In this blog we will cover changes to staff costs and dividend rates in 2022.
Staff costs change 2022
A levy of 1.25% is due to come into effect in April 2023, this Health and Social Care Levy is aimed at providing funding for Health and Social Care in the UK. There are limits imposed by HMRC on introducing new taxes, so in the time leading up to April 2023, the UK government has introduced a temporary tax increase of 1.25%from April 2022. This tax will mirror the impact of the levy and will be paid on earnings by employees, employers and the self employed.
National Insurance Contributions
From April 2022 employees and employers (and the self employed) will pay an increased rate of National Insurance Contribution (NIC).
See the table below for an illustration of the impact of the changes.
| Class 1 Employee | Class 1 Employer | Class 2 Self Employed | ||
|---|---|---|---|---|
| Pre April 2022 NIC Rates | 2021 | 12% | 13.8% | 9% |
| Post April 2022 NIC Rates | 2022 | 13.25% | 15.05% | 10.25% |
These rates will be correct up to April 2023, where the new Levy will be introduced and the NIC rates will reduce by 1.25%, the net effect in 2023 is a change of 0%.
National Living Wage and Apprenticeship Wage Limits
It has also been announced thatNational Living Wage and Apprenticeship Wage Limits are to be increased.
| Rate from April 2022 | Current rate (April 2021 to March 2022) | Increase | |
|---|---|---|---|
| National Living Wage | £9.50 | £8.91 | 6.6% |
| 21-22 Year Old Rate | £9.18 | £8.36 | 9.8% |
| 18-20 Year Old Rate | £6.83 | £6.56 | 4.1% |
| 16-17 Year Old Rate | £4.81 | £4.62 | 4.1% |
| Apprentice Rate | £4.81 | £4.30 | 11.9% |
| Accommodation Offset | £8.70 | £8.36 | 4.1% |
Next steps
There are some key things to get done to ensure these changes don’t have an adverse impact on your business.
Update software – These changes should be automatic, but it’s worth checking that payroll software has been updated and the changes are reflected.
Talk to employees – Your employees may not be aware of the changes, make sure you effectively communicate these changes to your team and allow them to reach out with questions.
Can you afford it – If not already done, forecast the impact this will have on your business model. If there is a negative effect, can you absorb it or do you need to revise your pricing strategy?
Dividend rate 2022
A dividend is a payment of profits to the shareholders of a company. Dividends are paid after corporation tax and are taken from any remaining profits.
The UK government is increasing dividend tax by 1.25%.
As many shareholders and company directors take a combination of salary and dividends from companies as remuneration, this change may have a large impact. Forward tax planning is always advisable and in non-straightforward cases, it may be prudent to employ a third party advisor to ensure that all your tax affairs remain both efficient and legal. See the table below for the changes in company dividend rates.
| Pre April 2022 | Post April 2022 | |
|---|---|---|
| Basic Rate | 7.5% | 8.75% |
| Higher Rate | 32.5% | 33.75% |
| Addition Higher Rate | 38.1% | 39.35% |
Are you a business owner that needs help with tax planning?
- A guide to dividends and how they should be used
- Information about pension contributions
- An outline of tax free or low tax benefits
- Transfers that can be made to spouses and family members
- Capital gains tax allowance using your ISA
To summarise
Businesses should assess the likely implications of both the proposed NIC increases and the rise in dividend rate.
Points for businesses to consider include:
- The impact of the 1.25% NIC increase on budgeted or projected labour costs.
- The potential effect on workforce elements that are internationally mobile.
- The impact of the dividend rate change and how this might alter remuneration strategies for shareholders and directors.
As with any major change to taxation, the implications may not be immediately obvious. These changes will lead to consequences for employees, employers and the self employed. As with all risks and market changes, effectively forecasting, planning and budgeting will help your business to prepare for any negative changes. Seeking professional financial advice from accountants and other business experts can be vital to ensure the financial health of your business.
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