People are working out how to dodge the NI rise.
As you’ll be aware, the government has committed to an across-the-board addition of 1.25% to NI rates from 6 April 2022.
Based on the average UK wage of £31,000 per annum (according to the Office for National Statistics), the NI rate rise will cost employees and employers a total of almost an extra £600 per year.
So in this blog we look at how to dodge the NI rise.
In practice higher earners will be hit proportionately harder by the NI hike than the lower paid. For example, on an annual salary of £24,000 employees’ and employers’ NI bills will be 8% and 7.19% greater respectively. Whereas, for someone earning £80,000 per year the NI increases are 15.3% and 8.66%. While it seems fair that those who earn more should pay more, any increase in taxes is unwelcome no matter how much you earn.
To prevent director shareholders of companies escaping the NI rise by taking a greater part of their income as dividends (which are not liable to NI) in place of salary, the dividend tax rates have also been increased by 1.25%.
The dividend rate rise affects director shareholders but not their companies. This means that despite the government’s efforts there’s a saving to be made by reducing your salary (where it would be liable to NI) and increasing dividends by a corresponding amount. For example, swapping £10,000 of salary for £10,000 of dividends means the company avoids NI of £1,505 which far outweighs the increase in NI.
Do you need further advice on your personal finances? Get in touch and our team will be happy to help.