The Health And Social Care Levy
In September 2021, the UK Government announced the introduction of a new Health and Social Care Levy (HSCL) to increase funds for the National Health Service. The levy will affect employers, employees and the self-employed from 6 April 2022.
In the first year the levy will be collected by a temporary increase to the rates of National Insurance by 1.25%. From April 2023, the rates of National Insurance will return to previous levels and a separate charge will be made for the HSCL. The levy will apply to the same earnings or profits currently liable to National Insurance contributions with similar exemptions, however, individuals above State Pension age will have to pay the levy from April 2023.
Employers should be budgeting for the increase in their staff costs and any additional inconvenience or costs of updated payroll systems. It may be worth considering salary sacrifice arrangements where appropriate to mitigate the additional burden.
Employees will have less take home pay in their pockets, at a time when businesses may by increasing the price of consumer products to meet their additional staff costs. The HSCL will be collected through the PAYE system.
The self employed will face an increased Class 4 NIC charge payable along with their income tax liability on profits reported via the Self Assessment tax return.
Private company owners
If you think you have escaped the HSCL because you remunerate yourself by dividends then unfortunately you are mistaken. The rates of tax to be applied to dividend income have been increased by 1.25% also. This means that from 2023 onwards (when the corporation tax rate may be 25%) the effective tax rate on extracted profit for a higher rate taxpayer could be 50.3%.