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Health and social care levy

 

Written by Ray Coman

 

PAYE code adjustmentsA hike in national insurance, dubbed the ‘social care levy’, will be phased in by the government from next April.  The government will increase national insurance of 1.25%.  Currently, national insurance is not payable by individuals of who have reached the state retirement age, which is currently 66 for most people.  However, from April 2023, the levy will be payable by all adults.

 

Employment national insurance levy

Self-employed national insurance levy

Contractor company national insurance levy

Applications

 

Employment national insurance levy

 

The employee’s national insurance threshold is currently £9,568 per year.  Therefore, a person with an income of £20,000, will pay an extra (20,000 – 9,568 x 1.25%, or) £130.40.

 

The employer’s national insurance threshold is currently £8,840 per year.  Therefore, an employer hiring a person with an income of £20,000, will pay an extra (20,000 – 8,840 x 1.25%, or) £139.50.

 

There is also an upper earnings limit for employees.  This is the limit at which the national insurance rate currently decreases to 2%.  The new levy, however, will not stop at the upper earnings limit.  Therefore, a worker on for instance £100,000, will pay an extra (100,000 – 8,840, @ 1.25% or) £1,139.50.

 

Self-employed national insurance levy

 

The social care levy will also apply to the self-employed liable to Class 4 NICs.  The increase in national insurance for sole traders and partners will be the same as that illustrated above for employees.  It should be noted that the levy is effectively an increase of 2.5%, since it is 1.25% for employers and 1.25% for employees.  The levy disproportionately affects employed over self-employed workers.

 

Contractor company national insurance levy

 

In addition, the tax paid on dividends will also increase by 1.25%.  Consequently, starting 6 April 2022, basic rate dividend tax will be 8.75%, higher rate dividend tax will be 33.75% and the tax on dividends for additional-rate taxpayers will be a whopping 39.35%.

 

Applications

 

According to the government statement, the extra income will be used -specifically- to fund the NHS and social care.  As a consequence, the levy will be of least cost and of greatest benefit the nations of Scotland, Wales and Northern Ireland.  The Prime Minister acknowledges that yesterday’s announcement breaks a manifesto pledge not to increase national insurance, income tax or VAT.  The reason given is the cost of the pandemic. Business groups argue these tax reforms will slow the pace of economic recovery.

 

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