Last week the Prime Minister announced that from April 2022 there will be a ‘Health and Social Care Levy’ (“HSC Levy”) of 1.25 percent on National Insurance Contributions (“NICs”) and a matching 1.25 percent increase in the rates of dividend tax. On the same day, the Chancellor confirmed that the Autumn Budget will be held on Wednesday 27 October 2021. Guidance for submitting Autumn Budget and Spending Review 2021 representations to HM Treasury has also been published.
The increased NICs rate is expected to raise £12 billion to be spent on the NHS and social care across the UK and levy contributions will apply UK-wide; people will pay the same in England, Scotland, Wales and Northern Ireland. A tax information and impact note is available.
NICs will increase by 1.25 percent for one year only for employees, employers and the self-employed from April 2022. This will cover both Class 1, (employee and employer), Class 1A and 1B and Class 4 (self-employed) NICs.
From April 2023, a new ringfenced Health and Social Care levy of 1.25 percent will be introduced which will apply to those who pay Class 1 (employee and employer), Class 1A and 1B and Class 4 (self-employed) NICs. This will also be extended to those over state pension age who are in work. When the new levy comes into effect, National Insurance rates will revert back to current levels. Existing NICs reliefs and allowances will apply to the Levy.
The levy will also apply to individuals above State Pension age with employment income or profits from self-employment above £9,568 but will not be charged on pension income, and those over the state pension age who are neither in work nor self-employed will not pay the levy.
HMRC will administer the levy which will be collected through PAYE As You Earn and Income Tax Self-Assessment.
From 2023/24, levy contributions will appear as a separate item on payslips. A generic message will also appear on some payslips in the next tax year (2022/2023).
For self-employed individuals who pay NICs through the annual Self-Assessment process, the rate increase will first be reported through the 2022/2023 tax return in January 2024. The new levy will first be reported through the 2023/2024 tax return in January 2025.
From April 2022, the Government is also increasing by 1.25 percent the rate of income tax on dividends from 7.5 percent to 8.75 percent for basic rate taxpayers. Higher rate taxpayers will pay 33.75 percent up from 32.5 percent and additional rate taxpayers will pay 39.35 percent up from 38.1 percent.
According to HMRC’s communications, the impact on individuals (including those over state pension age from 2023 with earnings over £9,688) will be as follows:-
- A typical basic rate taxpayer (earning £24,100) will contribute £180 a year.
- A typical higher rate taxpayer (earning £67,100) will contribute £715 a year.
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