8 September 2021
A small business investor has warned with small to medium businesses (SMEs) employing 61 per cent of workers, the 1.25 per cent rise in National Insurance for employees and employers will both hit small firms hard and hamper economic recovery.
There are currently over six million SMEs in the UK employing 16.8m people, many of whose founders and directors are paid primarily in dividends. These individuals will be hit twice by this rise, with increased NI contributions also reducing the profits from which dividends are paid, said Luke Davis, CEO of IW Capital.
The 1.25 per cent rise in dividend tax will take the tax rate to 33 per cent rate for higher rate taxpayers, said Davis.
The tax hike due in April 2022 was announced by the prime minister yesterday alongside a rise in dividend taxes, which will drop back to today’s rate after a year, ahead of a new health and social care tax on earned income to be levied from 2023.
The increases are predicted to raise £36bn over the next three years and intended to help clear the NHS backlog created by the pandemic and contribute to social care costs.