New Health and Social Care Levy

The UK Government has announced that a new 1.25% Health and Social Care Levy will be introduced. The new levy will be based on National Insurance (NI) contributions and will be applied UK wide.

As it will take some time to update HMRC’s computer system to collect the new levy there will be a temporary increase in NI contributions of 1.25% from April 2022 and the new levy will apply from April 2023.

The intention is to ring fence the funds raised from the new levy to fund investment in health and social care.

April 2022

1. From 6 April 2022 NI contributions for working age employees (Class 1 NI for employees), the self-employed (Class 4 NI) and employers (Class 1 NI for employers) will increase by 1.25%.

Anyone earning less than the Primary earnings threshold for NI purposes (currently £9,568) will not have to pay any additional NI contributions (or the new levy from April 2023).

 The increase in NI will not apply to Class 2 NI (the flat rate paid by the self-employed with profits above the small profits threshold, which is currently £6,515 per year) or Class 3 NI (voluntary contributions for taxpayers who want to fill in gaps in their contributions’ records to qualify for benefits).

Existing NI contribution reliefs to support employers will continue to apply.  For example, for businesses employing apprentices under the age of 25 and anyone under the age of 21.  The Employment Allowance (which discounts the smallest businesses’ employer NICs bills by up to £4,000) will also apply to the levy.

2. The rates of dividend tax will also be increased by 1.25% per cent from April 2022.

The first £2,000 of dividend income will continue to be free of income tax.  The new dividend rates of tax, which apply UK wide, will be changed as follows:-

• from 7.5% to 8.75% for basic rate taxpayers
• from 32.5% to 33.75% for higher rate taxpayers
• from 38.1% to 39.35% for additional rate taxpayers

April 2023

From 6 April 2023 the temporary increase in NI contributions will be replaced by the new levy. NI contribution rates will then be reduced accordingly.

The new levy will also apply to individuals who carry on working once they have reached State Pension age.

In April 2023, once HMRC’s systems have been updated for the change, the 1.25% Levy will be formally split out from NI contributions and shown separately on payslips and self-assessment tax computations.

 

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.