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9th September 2021

Breaking his pledge made in 2019, Boris Johnson unveiled his plans to increase National Insurance and Dividend Taxes on 7 September. Johnson and Rishi Sunak defended the plans by calling it the “biggest catch-up programme” in history and “sharing of the cost is the responsible thing to do”.

Let’s run through how the tax increase will affect you if you are a contractor, a small business owner, an umbrella worker or a sole trader.

National Insurance

The big one. An effective increase of 1.25% of NIC will see the treasury receive an extra £12bn each year.

Sole traders in the current (2021/22) tax year pay 9% Class 4 NIC On profits between £9,568 and £50,270 and another 2% on profits above this amount. From April 2022, these figures will increase to 10.25% and 3.25%.

Class 2 NIC contributions of those earning less than £6,515 will not change from £3.05 a week.

Contractors will not be severely affected by NIC changes unless they pay themselves a higher salary for any reason, which is not typical.

Dividend Tax

Where contractors are affected is here, and expected to contribute £600m annually to the cost of the social care reform. The tax on dividends will increase on anything received above the £2,000 allowance.

Limited company contractors in the basic rate band will pay 8.75%, up from the current rate of 7.5%. Those in the higher rate band will pay 33.75% instead of 32.5%, while additional taxpayers will see their taxes increase to 39.35% from 38.1%.

Employers

Because hiring organisations also pay NIC, they are not exempt from the tax rise either, making hiring more expensive.

Employer’s NIC will go from 13.8% to 15.05%, which will, of course, hit all of those end clients who moved their contractors onto payroll as a consequence of the IR35 reform.

Umbrella Workers

Another victim and perhaps one of the most affected by the Governments’ tax increase effort is the umbrella worker, who will see their NIC increase like everyone else employed under the PAYE scheme in the UK.

However, because they are engaged as temporary workers by their end-client, they also see the employer’s NIC deducted from their payslip, which will also suffer the 1.25% increase.

Summary

Once again, in an effort to collect more taxes, the Government hits the sector that was so severely affected by not only the pandemic but the IR35 reform as well. Ironically, this skilled workforce the Government will need the most to bring a much needed economic recovery in the future.

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If you have any questions or would you like to know more, feel free to contact us at 0800 917 9100 or e-mail info@myaccountant.co.uk

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