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The Health and Social Care Levy

health and social care

The Coronavirus pandemic has illuminated chronic problems in our health and social care system.  It has been estimated that it may take a decade to return to pre-pandemic levels and to clear the backlog created by Covid.  I think some honesty is due here though, the NHS has been floundering for many years and even before the pandemic there were issues in both the NHS and in adult social care with more people suffering medical conditions having to contribute to the cost of their social care.

The current Government has pledged to support the NHS using the same approach as the Government that established the NHS and the modern welfare state after the Second World War; supporting the NHS, reforming adult social care and creating a new integrated system between health and social care.  They pledge to provide significant new investment – reducing long waits for the tests and treatment that people need and they’re going to do it by introducing an additional £12 billion per year for health and social care on average over the next three years.  They have therefore taken the decision to raise taxes.  This will be in the form of a UK-wide 1.25% Health and Social Care Levy.

The introduction of this will be included in the National Insurance Contributions for the 2022-23 tax year and from 2023 will be separated and should be shown as a separate deduction on people’s tax calculations or pay slips.

You may have seen some posts on social media that the tax increase is actually 10% and not the 1.25% detailed by the Government.  This is pure mathematics, as we currently pay 12% NIC then an additional 1.25% equates to an increase of 10%, however from 2023 it is going to be a separate levy.

Table 1. Health and Social Care Levy rates

Employee
Main / higher rate

Employer

Self-employed
Main / higher rate

Current NICs rates (2021-22)

12% / 2%

13.8%

9% / 2%

2022-23 NICs rates

13.25% / 3.25%

15.05%

10.25% / 3.25%

2023-24

NICs rates

12% / 2%

13.8%

9% / 2%

Levy

1.25%

1.25%

1.25%

Charged on all earnings/profits above: (2021-22 thresholds)

£9,568

£8,840

£9,568

The increase will also affect employers.  Currently employers pay 13.8% and this will increase to 15.05% for Class 1 and Class1A NICs.  From 2023 once the Levy is separated it will also be applied to people who are working and are above State Pension Age who don’t currently pay NIC contributions.  The Levy is based on NICs which has historically part-funded the NHS and uses the rates, limits and thresholds already in place and applies to working age employees, Class 1 and self-employed, Class 4.

What is the impact?

Individuals

Those who earn less than the Primary Threshold / Lower profits Limit of £9,568 in 2021-22 will not pay the Levy.

e.g.

Mr Jones earns £24,100 per annum.

In 2021-22 he will pay NICs of £1,744.

In 2022-23 he will pay NICs of £1,925.

An increase of £181.

 

Mrs Jones earns £67,100 per annum.

In 2021-22 she will pay NICs of £5,221.

In 2022-23 she will pay NICs of £5,940.

An increase of £719.

 

Businesses

The Government recognises that they need to support small businesses, and therefore the Employment Allowance of £4,000 will also cover the Levy.

 

Company Directors and Shareholders

Dividends are payable to individuals who receive dividend income from shares.  These payments are not subject to NICs and therefore the Levy.  The Government believes that by increasing the tax rate on these dividends is a fair increase.  The current basic rate of dividend tax is 7.5%, increasing to 8.75% and the higher rate 32.5% increasing to 33.75%.

It is estimated that 60% of individuals with dividend income will not be expected to be affected by this change as there is a £2,000 tax free dividend allowance and many use the balance of their personal allowance.

Table 2. Dividend Tax Rates

Basic Rate

Higher Rate

Additional Rate

Current dividend tax rates (2021-22)

7.5%

32.5%

38.1%

2022-23 dividend tax rates

8.75%

33.75%

39.35%

You can read more from the Government HERE.

Or for more guidance and information, please CONTACT US and we’d be happy to have a chat.

 

Do you want to know how we can help you?

We would be happy to discuss your requirements and put the most appropriate package together for you.

 

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