Last month 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 each of the rates of dividend tax. The Chancellor also confirmed that the Autumn Budget will be held on Wednesday 27 October 2021.

The increased NICs rate is expected to raise £12 billion to be spent on the NHS and social care across the UK. Levy contributions will apply UK-wide.

From April 2022, NICs will increase by 1.25 percent for one year only for employees, employers and the self-employed. 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 HSC levy of 1.25 percent will be introduced which will apply again apply to the NICs categories set out above. This will also be extended to those over State pension age who are working. When the new levy comes into effect, NICs 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. Those over State pension age who are neither working nor self-employed will not pay the levy.

HMRC will administer the levy which will be collected through PAYE 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 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. The new levy will first be reported through the 2023/2024 tax return.

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; and
• A typical higher rate taxpayer (earning £67,100) will contribute £715 a year.