The impact of rising NI on R&D claims
Last week the Government announced that certain national insurance (NI) contributions paid by individuals and companies would rise by 1.25 percentage points from next April, as well as dividends paid to company shareholders. The idea of these increases is to fund health and social care costs associated with the National Health Service and similar organisations.
These changes may impact on the decisions made by companies relating to remuneration of directors and employees, as well distributions made from company profits.
In reality, NI is the same thing as income tax but with a different name. It makes sense, therefore, to look at these rates combined.
From April 2022 the new effective rates of tax for company employees will be:
- Basic rate: 33.25% (up from 32%)
- Higher rate: 43.25% (up from 42%)
- Additional rate: 48.25% (up from 47%)
Employers will also pay 15.05% of secondary NI contributions on anything above the minimum threshold (currently around £9,500), which has increased from 13.8%.
Finally, dividend rates from April 2022 will be:
- Basic rate: 8.75% (up from 7.5%)
- Higher rate: 33.75% (up from 32.5%)
- Additional rate: 39.35% (up from 38.1%)
On the flip side, the additional employer (secondary) contributions will attract additional corporation tax relief, as well as being enhanceable for R&D tax relief purposes. These will become more valuable from April 2023 when the main rate of corporation tax is planned to increase to 25%.
Companies wanting to pay salaried bonuses to their employees next year may want to consider bringing these forward to March 2022 or earlier, as this would save both the company and employees some tax.
Company directors who are also shareholders often compare the tax impact of taking salaried remuneration to dividends, and this will depend on a few factors including whether the company makes a profit or a loss, other income streams (such as rent or interest) and the amount of time spent by that shareholder undertaking qualifying R&D. These current changes slightly favour the dividend route as the additional 1.25% doubles up on salaried remuneration as there are both employee and employer contributions.
If you have any questions about changes in NI rates or any aspects of the R&D tax relief scheme and how it can be impacted by governmental policy, please do not hesitate to contact hello@yes.tax.
YesTax. Positively Better