On the 7th September the Chancellor, Rishi Sunak, announced a new UK-wide Health and Social Care Levy. From April 2022, businesses, employees and the self-employed will pay an extra 1.25% on earnings and this money will be ringfenced to go directly to health and social care.
The objective of the Health and Social Care Levy
- To support the NHS
- To fund reforming social care and create a new integrated system between health and social care focused on improving outcomes across all four nations of the UK
The devolved governments of Northern Ireland, Scotland and Wales will decide how they will apply the funds arising from their share of the Levy.
How much will be the Health and Social Care Levy?
There will be an additional 1.25% charge on earnings, employment benefits, PAYE settlement agreements and dividends from 6th April 2022 (unless you are a worker over state pensionable age, in which case the levy will be payable from 6th April 2023).
How will the Health and Social Care Levy be collected?
- On employed earnings it will be collected through the PAYE system
- Initially, due to administrative constraints, from April 2022, it will be included within the employers and employees national insurance (NIC) rates and reflected as such on the employee’s payslip
- From April 2023, the Levy will be separated out from the NIC and shown separately on the employee’s payslip
- If you are self-employed the 1.25% will be included in your Class 4 NIC payments. From April 2022 the Levy will likely to be payable in January and July each year
- For most self-employed, the likely first payment date may be 31st January 2024, unless you are over state pensionable age, in which case the first payment maybe as late as 31st January 2025
- If you pay tax on dividends, the Levy will be added to the present dividend rates
- Depending on your overall circumstances the Levy on the dividends may be payable either:
a) In January and possibly July each year. The first payment date may be 31st January 2024 or
b) You could request for the tax be collected through your PAYE code number during the tax year itself or, in some cases, during the following tax year
- As regards benefits, the Class1A additional amount will need to be paid by 19th July following the end of the tax year
What will be the new rates from 6th April 2022?
- Employers NIC will increase from 13.8% to 15.05% on earnings above £8,840
- Employees NIC will increase from 12% to 13.25% on earnings between £9,568 and £50,270
- Employees NIC will increase from 2% to 3.25% on earnings in excess of £50,270
- Where your total income is not more than £50,270, the dividend rate will increase from 7.5% to 8.75%
- Where your total income is between £50,271 and £150,000, the dividend rate will increase from 32.5% to 33.75%
- Where your total income is in excess of £150,000, the dividend rate will increase from 38.1% to 39.35%
What could be the financial impact of the Health and Social Care Levy
- Individual earning £20,000 – Additional cost £130. Employer cost £140
- Individual earning £50,000 – Additional cost £505. Employer cost £515
- Individual earning £100,000 – Additional cost £1,130. Employer cost £1,140
- Individual in receipt of a dividend of £20,000 – Additional cost £225
- Individual in receipt of a dividend of £50,000 – Additional cost £600
When will the Health and Social Care Levy not apply?
- It will not apply to pensionable income
- Self-employed Class 2 NIC and the voluntary Class 3 NIC
- Individuals, earnings below the employees NIC threshold (presently set at £9,568). For employers, the NIC threshold is currently at £8,840
- If your dividends are covered by your personal allowance (£12,570) and/or the tax-free dividend allowance of £2,000
- Businesses who are employing apprentices under the age of 25, as long as their gross yearly income is less than £50,270
- Businesses who are employing anybody under the age of 21, as long as their gross yearly income is less than £50,270
- Businesses who are employing veterans from the armed forces where they are entitled to employers NIC veterans relief, as long as their gross yearly income is less than £50,270
- Employers operating within Freeports, where they are eligible for employers NIC relief in respect of employing new employees, as long as their gross yearly income does not exceed £25,000
- Dividends in an ISA will not be affected
- The employment allowance (currently £4,000) can be offset against the Levy
Please get in touch with the team at DRG Chartered Accountants, if you wish to discuss the Health and Social Care Levy and its impact on you and your business. We would be very pleased to hear from you.
For further information
Please note that this is preliminary guidance and might be subject to change
DISCLAIMER: This information is for guidance only, and professional advice should be obtained before acting on any information contained herein. We will not accept any responsibility for loss to any person as a result of action taken or refrained from in consequence of the contents of this publication.