The implementation of the new Health and Social Care Levy (“HSCL”) from April 2022 saw a 1.25% increase in the rate of  Class 1, Class 1A, Class 1B and Class 4 National Insurance contributions (“NIC”) and income tax on dividends (see further details on this below). 

For NIC, the increase is applied for the current tax year, 6 April 2022 to 5 April 2023, through the increase in the NIC rates, and was relieved somewhat through an increase in the threshold for which the NIC applies from July 2022. From April 2023, the position will change slightly and the HSCL will be separate to NIC and will also apply to those over state pension age, a significant change from current rules whereby those over state pension age are not liable for NICs on income. 

The HSCL increase in the rate for dividends applies from 6 April 2022. Dividends in excess of the £2,000 dividend allowance, are now taxed at 8.75% (previously 7.5%) for dividends falling within the basic rate band; 33.75% (previously 32.5%) for dividends falling within the higher rate band; and 39.35% (previously 38.1%) for dividends falling within the additional rate band. 

With the dividend allowance remaining at £2,000, those in receipt of dividends should be mindful of this increase when considering their income tax position for the current tax year.      

It remains to be seen if the new Chancellor will reconsider the HSCL in view of the current increases in the cost of living. 

Get in touch

If you have any queries on the Health and Social Care Levy or would like to discuss how this impacts your tax position, please get in touch with me at nicola.sargeant@jcca.co.uk or your usual Johnston Carmichael contact.