With national debt at a scary £2.1 trillion, an annual deficit of £304 billion, the financial hangover from Covid-19, a huge NHS backlog, and an aging population, it’s easy to see why funding state care is a key issue. The new Health & Social Care Levy forms a crucial part of the government’s ongoing plans for funding health and social reform.
The background to the Health and Social Care Levy
The government expects the changes will raise around £12 billion a year, which will be ring-fenced to fund investment in the wider health and social care landscape. The changes will affect pretty much everyone, including employers, employees, self-employed people, and those who receive dividends.
Who will the new Health & Social Care levy affect?
Specifically, the HSC levy will apply to:
- Employee and employer Class 1 National Insurance Contributions.
- Self-employed people who pay Class 4 NI
- Those who pay dividend tax
Employers who are eligible for NIC reliefs (such as for employees under the age of 21) will also be glad to know that these will still apply to the separate levy.
What to tell your client:
The new levy doesn’t affect the threshold at which they start paying National Insurance, but it does mean they’ll pay NI at a higher rate.
How much is the new Health and Social Care levy?
From the 6th April 2022
There will be a temporary 1.25% increase in Class 1 and Class 4 National Insurance Contributions.
- For employers this means NI is payable at 15.05%
- Employees will pay Class 1 NI at a rate of 13.25% on eligible earnings below the Upper Earnings Limit, and 3.25% on earnings above it
- Self-employed people will pay Class 4 NI at a rate of 10.25% on eligible earnings below the Upper Profit Limit, and 3.25% on earnings above it
- Dividend tax rates will each increase by 1.25%
From 6th April 2023
The NI contributions rate will return to their previous levels, and the 1.25% levy will become separate to NI. This means that any workers over State Pension age will still need to pay the levy, even though they’ve stopped paying NI.
What to tell your client:
From April 2023 people over state pension age will pay the levy, even though they won’t pay NI.
How does the new levy apply to individuals who are internationally mobile?
As the HSC levy is based on current NIC rules, it is expected to apply to individuals who work in different global jurisdictions (i.e., they are internationally mobile) as long as they are liable for NIC payments in the UK. Individuals who don’t have to make NIC payments should therefore be outside its scope.
What should employers do to prepare for the new health care levy?
The new HSC levy will clearly come with additional costs for employers, but prepare your clients to consider more than just the increase to their NI contributions.
Updating, reconfiguring or upgrading payroll software usually takes time and costs money. If clients are managing payroll in-house, they’ll need to think about the time and expense involved in staff training.
The increasing Primary Threshold for NI
The Primary Threshold increases in July 2022, so employees will keep more of their pay before starting to make contributions, although the threshold for employers doesn’t change.
Where relevant, it’s also worth mentioning to your clients that the lower profits limit for NI will also increase for self-employed people, mirroring the changes taking place for employees.
Communicating the changes
Though it takes time (and therefore money) to inform clients and staff about upcoming changes, notifying them as far in advance as possible helps to reduce bottlenecks of queries as changes take effect. Clients might also need your support communicating this to their own staff, so preparing something they can share might also help reduce the pressure on your inbox!
Learn more about using Pandle with your clients to collaborate more easily, and with less stress.