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The New Health and Social Care Levy – what will it mean for your business?

Posted on 28 September 2021SharePrint

The recent announcement that the Government would be increasing National Insurance Contributions (NICs) and introducing a new Health and Social Care Levy has significant implications for UK businesses and the changes will need to be carefully prepared for well in advance.

What is the purpose of the Levy?

It is estimated that the Levy will bring the Government £12 billion which will be ringfenced for spending on health and social care provision. The increases and the Levy will apply across the UK but the Government only provides funds for care in England. The extra moneys raised from outside England will be distributed to the devolved administrations for them to spend on their health and social care priorities.

What is going to happen?

The first changes take effect next April when NICs increase by 1.25 per centage points. This applies to employees, employers and the self-employed (Class 4 charged on profits not flat-rate Class 2). Employees of state pension age will not be affected by the rise between April 2022 and April 2023. Obviously, the increases only apply to earnings above the statutory Lower Earnings Limit but will apply to both the 12 per cent rate up to the Upper Earnings Limit (UEL) and the current 2 per cent rate above the UEL. The increase will also apply to employer-only Class 1A NI on benefits in kind and Class 1B NI on PAYE Settlement Agreements.

The other significant change for businesses in April will be a 1.25 per centage point increase in taxes on dividends. Business owners and shareholders will have to pay a contribution to the provision of health and social care but there is no general increase to Income Tax so other forms of income are not affected.

What happens next?

In April 2023 the increase in NICs will be reversed and replaced by the introduction of the new Levy. The Government is doing it this way because the introduction of a new tax is administratively challenging and HMRC requires time to implement it correctly.

The Levy will be calculated and displayed on payslips separately from NICs and will be set at 1.25 per cent for employees, employers and the self-employed. Unlike NICs, the new Levy will be paid by those workers who are still employed beyond the state pension age.

Make sure you are prepared...

It is very important to make sure that you are prepared well in advance of the changes taking effect. You will need to understand which employees are affected and how to manage the cost implications on your business. Our payroll expert, Kate Upcraft, will be explaining more and answering questions on the subject during her presentation of Payroll – The Essential Update. You can view the course description and upcoming dates here.

Written by Paul Murphy
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