The UK Prime Minister has announced an increase in the National Insurance contributions paid by those in employment today.
There are two changes which affect the self-employed:
National Insurance Contributions will increase by 1.25% from April 2022 - almost all workers in the UK pay some form of National Insurance Contributions (NICs), but the rules vary depending on your employment status. If you're making more than £6K/year, you'll be affected.
Dividend tax rates will rise by 1.25% - this really only affects those of you who are registered as Limited Company owners, and top up your salary income with any dividends on the profits you make. This is a fairly common practise in the UK, and affects around 4m companies, around 2m are 'sole owner/employee' businesses.
There's a longer and more detailed explanation over at the excellent MoneySavingExpert, but here are our immediate tips for dealing with this announcement.
Whilst tax changes can seem complicated, you only really need to understand how it affects you, rather than every possible combination and permutation. If it's causing you concern, seeing all of the headlines, give it a couple of days until the headlines subside - and then find trusted resources like MoneySavingExpert to read. Avoid overly political sources, where the article gets caught up in the fairness or justification of the change - and just look at the objective facts.
This change doesn't come into affect until April of next year, so you have some time to plan ahead, and understand what impact it might have upon your income and business. If you have an accountant, speak to them to understand what it means in real terms. Whilst 1.25% sounds like a small number - depending on your income, it could mean an extra £500 a year if you're making around £50,000 annually, so it means you need to be putting a little extra aside to cover the costs, especially if you're a limited company.
Review your pricing.
It's worth reviewing your pricing every year to take into consideration changes in tax, your income, your costs, and generally that you've another year of experience under your belt. Consider whether you might want to fold the NI contributions in to your pricing. Whilst it's a tax (i.e. the more you max, the more you'll pay), it's always worth looking at whether you're still charging market rates. It's likely your clients increase their prices year on year too.
Whilst taxation increases can be frustrating, and especially after a number of years where small businesses have been disproportionately affected by issues like Brexit, IR35, and COVID - mental health can be significantly affected by concerns around money, and in the UK, it's one of the biggest causes of anxiety.
Financial confidence and resilience comes from engaging with the topic, understanding your financial position, and dealing with the changes in a rational way - not avoiding or ignoring the topic until you get a bill.
That said, even good preparation and planning cannot solve all problems, and debt is a very real and challenging issue for many. We've posted a list of links to resources that you may find useful if you're finding issues related to debt or income overwhelming.