Boris Johnson launched a new Health and Social Care Levy this week to replenish the country’s finances in the aftermath of COVID-19…
It appears “unprecedented times” translates into unprecedented tax increases which depart from the Conservative party’s commitments to the triple lock on income tax, National Insurance Contributions (NICs) and VAT.
What is the new Social Care Levy?
From April 2022 the government will introduce a new, UK-wide 1.25% Health and Social Care Levy which will be ringfenced for health and social care.
In its present incarnation the levy will form an increase of 1.25% on National Insurance Contributions (NICs), however, from April 2023 it will be legislated separately.
The National Insurance Contributions (NICs) increases will affect both the self-employed, employed and employers. All working adults will pay the levy, including old age pensioners.
The NIC increases will be as follows:
| 2021/22 | 2022/23 | |
| Class 1 Primary NICs (Employees) | 12% | 13.25% |
| Class 1 Secondary (Employers) | 13.80% | 15.05% |
| Class 1A | 13.80% | 15.05% |
| Class 4 (Self Employed) | 9% | 10.25% |
There will also be a 1.25% increase to dividend rates therefore it is anticipated the reform will affect investors and company owners whose remuneration consists mostly of dividends:
| 2021/22 | 2022/23 | |
| Dividend (Basic Rate Band) | 7.50% | 8.75% |
| Dividend (Higher Rate Band) | 32.50% | 33.75% |
| Dividend (Additional Rate Band) | 38.10% | 39.35% |
Who Will It Impact?
In its current state, the proposal will impact the self-employed, employers and employees as it forms an increase to Class 1, Class 1A, Class 1B and Class 4 National Insurance Contributions (NICs).
A significant gap between the amount of NICs paid by employees and self-employed workers already exists in the tax system, the increase of Class 1 NICs to 13.25% for employees emphasises this gap further.
As the Health and Social Care Levy focuses on NICs as a source of raising revenue, the increase also widens the gap between those who are employed/self-employed and those who earn their living from property income.
Furthermore, it is highly unusual for governments to raise taxes for those of pensionable age. Although the Levy will only result in an increase to NICs for one year, it forms a precedent for charging NICs of OAPs. It will be interesting to see whether the Health and Social Care Levy will also seek to charge older generations.
Some commentators have also argued against the Levy on the basis that as it seeks to protect older generation’s assets from social care bills it could be construed as a tax on the young to help older people retain and pass on their wealth.
It is worthwhile noting that there will also be an increase to dividend tax rates which may also impact OAPs who rely on dividends from their investments to support their living costs. Of course, the increase in dividend tax rates will also impact company directors who extract most of their remuneration in the form of dividends.
Whilst the Health and Social Care Levy has all the appearance of a new tax, ultimately it will be collected via the current system and as such it is difficult to disassociate it from a tax increase. Whether this the first in a line of new changes remains to be seen….
If you would like advice on the new Health and Social Care Levy or how to minimise your tax bill, please get in touch with our Tax Advisory team