Changes to NIC and the Health and Social Care Levy - 1.25% tax hike to cover social care costs
The launch of a social care levy from 2022 will see all taxpayers facing a 1.25% tax charge under government plans, while dividend tax will also rise.
Last week has been one of huge change in the UK with the announcements made by the Prime Minister on 7th of September 2021 around further support and funds for both NHS and Social care support in the form of a new Levy for Health and Social Care. It has been a difficult 2 years due to the pandemic increasing borrowing and costs to ensure the UK comes through the crisis and as such the government have had to change direction from original plans not to increase tax and National Insurance to increasing individual and employer statutory deductions in the form of the new levy which initially will form part of the National Insurance deductions. The announcement therefore confirmed the new levy will be a “two-stage” change with an effective date of the 6th of April 2022.
The first stage therefore for 2022/23 will see an increase in most forms of National Insurance through a 1.25% increase to the current levels with no cap. For employees this means 13.25% up to the Upper Earnings Limit then 3.25% after. For employers the NI contributions increase to 15.05%. The same 1.25% increase will also be added to Class 1A and 1B employer costs and class 4 contributions for the self-employed.
Employers are being encouraged to include a payslip message to show that the increase in NICs relates to the Health and Social Care Levy. It was also confirmed that the levy amount can be offset against the employment allowance for those eligible.
From April 2023, the UK National Insurance rates will revert back down to the current percentages and rates while the Health and Social Care Levy will become a stand-alone deduction at the percentages discussed previously and as such will be shown and reported separately on payslips and employers RTI and other returns such as the P11D(b).
The levy will be paid by businesses and individuals, including the self-employed, from April 2022, and this will be extended in April 2023 to workers who continue to work after state pension age. Legislation will be passed to ensure that the charge is an independent tax, discrete from NICs and it will take a year for HMRC to update its systems to accommodate the levy as a separate charge, as opposed to a NICs’ increase on payslips.
Anyone earning less than £9,680 will not have to pay the new levy.
The dividend tax, will see the current rates rising: basic rate of 7.5% will rise to 8.75%, the higher rate of 32.5% will rise to 33.75% and the additional rate of 38.1% will rise to 39.35%.
As the top rate of tax on dividends will increase to 39.35% - nearly twice the 20% top rate of tax on capital gain. Individuals who hold material shareholdings in trading or investment companies will have clear incentives to try and structure their returns as capital gains rather than dividend income.
Existing NICs reliefs to support employers will apply to the Levy. Companies employing apprentices under the age of 25, all people under the age of 21, 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.
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