This week has seen the government announce the new Health and Social Care levy. As the impact of Covid starts to hit, this is potentially the first of many tax changes that we can expect over the next few years. But what is the new Health and Social Care levy and how will it affect your business…
What is it?
The Health and Social Care levy is a new charge that is being introduced that will (eventually) be ringfenced to be paid directly to the NHS and social care. I say “eventually” because the levy will apply from April 2022, but it won’t be ring fenced until April 2023.
How much is the increase?
- The increase will be 1.25% and will apply to Class 1, Class 1A & 1B and Class 4 NIC’s.
- It will kick in after the NI Allowance of £9,568.
How will it affect me?
It will affect EVERYONE who works – whether that is employed, self-employed, or even over state pension age and still working.
It will initially (from April 2022) be added to your National Insurance contributions. But from April 2023, your National Insurance contributions will reduce back to normal levels, and then it will be a new line on your payslip or your self-assessment calculation and will be stated as the Health & Social Care Levy.
If you are an employer, you will also have an increase on your Employers NI rate from 13.8% to 15.05%. A lot of small employers don’t physically pay Employers NI contributions as it is covered by the Employers NI Allowance which currently stands at £4000 per year, but if you have a few staff, and you are only just keeping under this allowance, you may find that the new Health & Social Care Levy will “eat” into it at a quicker pace, and that you have a charge towards the end of the tax year.
If you receive dividends that are taxed, there will be an increase in the dividend tax rate from 7.5% to 8.75% for the basic rate band and from 32.5% to 33.75% in the high-rate tax band.
If you have any questions about the impact of the new levy on your business and how you manage your team, please feel free to get in touch and we can talk you through the practical implications and what steps you can take to manage your cash flow.