fbpx

Health and Social Care Levy

From April 2022 a new Health and Social Care Levy is being introduced.

This comes in two parts.

  • For 2022-23 there is a 1.25% rise in Employers and Employees NI, Class 4 Self Employed NI and in Dividend Tax.
  • For 2023-24 onward, Employers and Employees NI comes back down to the 2021-22 rates, but instead a separate Health and Social Care Levy will apply. Presumably the rises in Class 4 Self Employed NI and in Dividend Tax will continue to be levied as per 2022-23.
  • The Health and Social Care Levy will apply from April 2023 at 1.25% for employers and employees, shown separately on payslips.
  • The Health and Social Care levy will continue to be paid by people over state pension age and still in employment, although they stop paying Employees NI at state pension age.
  • There are no proposed changes, other than inflationary, to the thresholds for NI.  It would seem the new Health and Social Care Levy will operate on the same thresholds as Employers and Employees NI.

So, what are the practical implications of this?

  • Broadly this means a widespread 1.25% increase in both Employed and Self Employed NI, and on Dividend Tax.
  • Employers are also paying an extra 1.25% in Employers NI.
  • Employees, Self Employed and Company Directors will all be equally impacted.
  • Clearly the extra 1.25% payable by Employers may create pressure on pay growth.
  • Landlords, Pensioners and those living off bank interest will be unaffected.

Although there will be some nuances broadly:

  • The Health and Social Care Levy will mirror National Insurance in how it falls (other than those working beyond retirement date)
  • The separation from April 2024 means we will no longer refer to “Tax and NI” it will be “Tax, NI and Levy”

In the Spring Statement 2022 on 23 March 2022 the following measures were introduced to mitigate some of the effects of the new levy:

  • NI threshold for employees aligned with the Personal Tax Allowance from 6th July 2022.
  • Class 4 NI threshold for Self Employed aligned with the Personal Tax Allowance from 6th July 2022, blended annualised rate for 2002-23 at 3/12ths old level, 9/12ths new level.
  • Class 2 NI threshold aligned with the Class 4 threshold as above, and a zero rate of Class 2 NI between the Small Profits Threshold and the Class 4 NI threshold.
  • It appears the zero rate of Class 2 NI may extend down below the small Small Profits Threshold to £0.  At the time of writing, the day after the Spring Statement, further clarity is awaited on this as draft legislation is not clear.  If this is the case then Voluntary NI for the Self Employed will not be necessary.
  • Spring Statement 2022