Mini Budget reform: National Insurance and Dividend Tax Cuts -now updated!

As a result of, what can only be described as, political turmoil over the last month, please note that a number of announcements from the mini budget on 23 September 2022 have now been reversed. Businesses (including accountants) need stability. Political parties, take heed! This blog may require further updating once the fiscal statement has been announced, planned for 31 October 2022.

National Insurance

Mini budget changes stay 🙂

From 6 November 2022, the temporary 1.25% percentage point increase in National Insurance rates is being reversed for the rest of the tax year (to 5 April 2023). The planned health and social care levy of 1.25% from April 2023 has also been scrapped.

The thresholds for paying employer and employee National Insurance remains the same and therefore the advice on the most tax efficient salary to pay in the earlier tax planning blog remains the same: https://www.lothianaccounting.com/2022-23-tax-planning-for-owner-managed-companies/

The amount of National insurance that will need to be paid will however reduce for directors.

As this is calculated on a cumulative basis for directors, the National Insurance payment for a sole director company will now be £391.92 compared to £431.66 previously. There is only a small change where at least 2 directors are paid £11,940 per annum (from £4.24 to £3.84 per annum National Insurance payment) as the employer National Insurance is covered by the employment allowance.

Dividend Tax

Mini budget change reversed 🙁

Dividend tax increases now stay in place, rather than reducing to original rates (7.5%, 32.5% and 38.1%). Not good news for small company owners. Therefore there is now no need to delay dividend declarations.

Dividend tax was increased by 1.25% from April 2022 (basic rate dividend tax to 8.25%, higher rate to 33.75% and additional rate to 39.35%.

{No longer valid } The dividend tax cut to reverse the 1.25% rise will come into effect from April 2023 and is expected to save dividend taxpayers an average of £345 next year. Basic dividend tax will fall back to 7.5%, higher rate to 32.5% and additional rate to 38.1%

{No longer valid } For a company owner who does not use up the basic rate allowance each year, this means it is more tax efficient to wait and declare dividends from April 2023. Likewise owners who may need to extract more cash from their company and pay some higher rate tax should plan this to coincide with the fall in dividend tax rates (from April 2023).