Health & Social Care Levy: Rise in Dividend Tax Rate

1 year, 3 months ago by Oliver Atkinson

As part of the new Health & Social Care Levy that will be applied from April 2022, the dividend tax rates will see an increase of 1.25% across the board. Alongside the rise in National Insurance contributions, these measures are aimed at funding the costs of the NHS and social care in the UK.

So what does this look like? The increase applies to all dividend tax bands so we should expect to see an increase as per the table below:

Tax Band	2021-22 (Current)	2022-23 (Proposed)
Basic Rate	7.5%	8.75%
Higher Rate	32.5%	33.75%
Additional Rate	38.1%	39.35%

Whilst the tax band thresholds for 2022-23 have not yet been announced, we should expect any proposed changes to these to be referenced during the Autumn budget coming in October 2021. The current Dividend allowance of £2,000 will remain in place for the time being.

Let’s look at a quick example for a company director to get an idea of how this will applied in practice. The following table is based on dividends paid at the basic rate and makes no allowances for any change to the personal tax thresholds.

	Income	Personal Allowance	2021-22 (7.5%)	2022-23 (8.75%)
Salary	£9,500	£9,500
Dividends	£40,770	£3,070	£37,700	£37,700
Totals	£50,270	£12,570	£37,700	£37,700
Dividend Allowance			(£2,000)	(£2,000)
Taxable Dividends			£35,700	£35,700
Tax Due			£2,678	£3,124

And another example for those who may pay at the higher rate:

	Income	Personal Allowance	2021-22	2022-23
Salary	£9,500	£9,500
Dividends	£90,000	£3,070	£86,930	£86,930
Totals	£99,500	£12,570	£86,930	£86,930
Dividend Allowance			(£2,000)	(£2,000)
Dividends taxed at basic rate			£35,700	£35,700
Dividends taxed at higher rate			£49,230	£49,230
Tax Due			£18,687	£18,687

Self Employment Tax

Health & Social Care Levy: Rise in Dividend Tax Rate

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