In line with one of the key promises made by Liz Truss during her Conservative party leadership campaign, the Chancellor, Kwasi Kwarteng, has announced that the April 1.25% increase in NICs will be reversed from 6 November 2022.
In April 2022 a new health and social care levy was announced to deal with the social care crisis and NHS backlog caused by the pandemic. For the tax year 2022-23 the levy has been collected via a 1.25% increase in National Insurance Contributions for working age employees, the self-employed and employers and a 1.25% increase in the income tax rate on dividends. It was proposed that, with effect from April 2023 the 1.25% levy would be formally separated from NICs (NICs rates would then reduce by 1.25%) and would also apply to individuals working above state pension age.
The Chancellor's announcement now reverses this.
The announcement confirms that NICs for employees, the self-employed and employers will be cut by 1.25% with effect from 6 November 2022 and that the new health and social care levy will not be implemented. The increase in the dividend tax rate will also be abolished with effect from 6 April 2023.
As the costs of living increase, any measure which puts more money into the pockets of individuals and employers is welcome. However, this will be the third change to NICs in this tax year, adding to payroll complexity for employers. While the decrease in rates takes effect from November, in practice it may be January before employees receive the additional cash depending on how quickly employers are able to implement the change.
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