Maybe it was a dream, or I was not listening properly…..but in the March 2021 budget did the chancellor say that they would not increase tax over the course of the current parliament……….!!!

Is an increase in the rate of tax on dividends not an increase in tax? The increase of 1.25% from 6 April 2022 means that from this date the dividend rates will increase to 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. The £2,000 dividend allowance will remain. It will also impact on the rate of tax that is applied to overdrawn directors loan accounts, as this is linked to the rate of dividend tax, so this will also increase from 32.5% to 33.75%.

This was announced last week alongside, an increase in National Insurance Contributions (NIC) of 1.25% from the same date for a period of one year. The National Insurance increase is a “temporary” increase as from April 2023 the national insurance rates will go back to their current levels. However the 1.25% additional NIC will still be there albeit it will be renamed as the “health and social care levy”. This will apply to Class 1 (employee and employer) NIC and Class 4 NIC but not Class 2 or Class 3 NIC. It will also apply to Class 1A NIC (Benefits in Kind) and Class 1B NIC (PAYE Settlement Agreements – PSA).

These increases are a fall out from COVID and the need to get funds to seek to resolve the social care agenda. We can all appreciate this and let’s be fair we all knew that something had to happen, but maybe we did not expect it quite so soon.

The obvious thing that businesses now need to consider is whether, where you can, you should be paying dividends and bonuses, before March 2022. There will be other factors that need to be taken into account when making this decision, as everyone’s personal circumstances are different.

Alongside this was announced a change to care costs and how these will be funded.

From October 2023 a cap will be introduced of £86,000, which will be the maximum amount that anyone will have to spend on their care during their lifetime. In addition, if you have assets over £100,000 you will not be entitled to any funding from the government until your assets fall below this limit, which is a significant increase from the current level of £23,250. If you have assets between £20,000 and £100,000 you will be entitled to some support. Holding assets below £20,000 means you will not have to pay anything towards your care.

What is not clear at the moment is whether the £86,000 maximum takes into account care costs that you have already incurred / are incurring and this is something which will interest a lot of people either currently in care or those managing the finances of family members in care.

More detail is likely to be included in the Autumn budget which will take place on 27 October 2021.