The increase will apply to employers, employees and the self-employed.
Following the news that National Insurance (NI) contributions will be increased by 1.25% in order to lead into a Health and Social Care Levy from 2023, David Shearer, tax specialist at Old Mill has pointed out that this will likely hit small to medium enterprises (SMEs) the hardest.
The increase will apply to employers, employees and the self-employed.
Shearer pointed out that this will, therefore, be an effective 2.5% increase for those individuals who own their own company and pay both the employer and employee levy on their salary.
In addition, there will also be an increase of 1.25% 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 individual savings accounts (ISAs) or fall within the £2,000 dividend allowance.
Shearer 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 [Rishi] Sunak’s furlough scheme comes to an end.
“Initial analysis suggests that over the last six months this government has announced £36bn 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.”
Shearer added: “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.”
