After much speculation Boris Johnson has unveiled his long-term plans for social care and the NHS through the introduction of a Health and Social Care Levy.
And while there is little detail so far, the key points are that from April next year there will be an NI rate increase of 1.25 per cent before it’s shown as the separate Levy from April 2023.
The increase will apply to employers, employees and the self-employed – therefore, an effective 2.5 per cent increase for those who own their own company and pay both the Employer and Employee Levy on their salary.
There will also be an increase of 1.25 per cent in the rate of tax shareholders pay on the dividends they receive. As it is a straightforward increase in the rate of tax, it will have no impact on individuals who pay no tax on the dividend income, such as if the shares are held in ISAs or fall within the £2,000 dividend allowance.
David Shearer, a tax specialist at financial experts Old Mill described it as a “kick in the teeth” for small business owners. He said:“Whilst we welcome the fact that this government is seeking to tackle much-needed social care challenges, there will be inevitable concerns about the timing and potential impact on many businesses.
“We are looking at a total tax burden that’s been increased to record peacetime levels and there are widespread concerns that these measures could potentially stifle jobs growth pushing up payroll costs just as Mr Sunak’s Furlough scheme comes to an end.
“Initial analysis suggests that over the past six months this government has announced £36 billion of tax rises which is far bigger than any previous Budget over the past 50 years. These reforms also seem at odds somewhat with previous measures like the Super-Deduction scheme brought in to stimulate investment and growth in the economy.
“The new tax on dividends is yet again another kick in the teeth for small company directors. It seems that the smallest businesses are bearing the brunt of tax reform as this group of sole traders and owner-managers running incorporated firms were overlooked during the pandemic in terms of access to support and this adds in another unforeseen challenge as they try to get back on track.”