Taking a look at the new Health and Social Care Levy

22 Sep 2021

From April 2022, the government will introduce a new UK-wide 1.25% Health and Social Care Levy, ringfenced for health and social care. This will be based on national insurance contributions (NICs) and from 2023 will be legislatively separate.

It appears that in 2022/23:

  • there will be a 1.25% increase in Class 1 (employee and employer) and Class 4 (self-employed) NIC for the main and higher rates; and
  • there will be a 1.25% increase in dividend tax rates.

The Levy will be effectively introduced from April 2022, when NICs for working age employees, self-employed and employers will increase by 1.25% and be added to the existing NHS allocation. The Levy will not apply to Class 2 or 3 NICs.

From April 2023, once HMRC's systems are updated, the 1.25% Levy will be formally separated out and will also apply to individuals working above State Pension age. Additionally, NIC rates will return to their 2021/22 levels.

Existing NIC reliefs to support employers will apply to the Levy (e.g. apprentices under the age of 25, all people under the age of 21, and veterans and employers in freeports will not pay the Levy for these employees as long as their yearly gross earnings are less than £50,270, or £25,000 for new freeport employees). The Employment Allowance will also apply to the Levy.

According to the government, combined with changes to the funding of social care, lower-income households will be large net beneficiaries from this package, with the poorest households gaining most (as a proportion of income).

60% of individuals with dividend income outside of ISAs are not expected to pay any dividend tax or be affected by this change in 2022/23. The 20% highest income households will contribute more than 40 times that of the 20% lowest income households.

Over a third of the overall tax increases (and over half the increase in dividend tax rates) will come from the top 10% of households, with the majority coming from the top 20% of households. The highest earning 14% of people will be paying around half the revenues.

2021 Autumn Budget

Chancellor Rishi Sunak will deliver his third Budget on Wednesday 27 October 2021. He is quoted as saying 'he wanted to balance extra cash for public services with keeping the public finances on a sustainable path'.

Keep your clients informed of the impact of the Budget and actions they should be taking, together with the other changes to the taxation system brought in by Making Tax Digital (MTD) by pre-ordering one of our Budget Summaries.

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