The announcement of the 1.25% increase in NICs and tax on dividends has come more than six months before they take effect. This means that with careful planning there is time to reduce the impact of these new rates on your business.
For example, employees could consider agreeing a salary sacrifice arrangement with their employer, such as sacrificing their £5,000 annual bonus for an additional pension contribution paid by their employer. Such an arrangement would save 1.25% NICs for both employee and employer as well as £2,000 income tax where the employee is a higher rate taxpayer.
Employees might also consider a salary sacrifice in favour of an electric company car.
Shareholder/directors of family companies could consider bringing forward dividend payments to before 6 April 2022. However, such strategies require careful planning; considering that if the extra dividend takes the taxpayer’s income above £50,270 the excess would be taxable at the 32.5% rate instead of the 7.5% rate and the planning could backfire.
If you’d like help navigating these changes with the best possible outcome for your business, please get in touch. We’re happy to help you plan.