What the health and social care tax rise means for you

Boris Johnson announced on Tuesday, 7 September a 1.25% rise in National Insurance (NIC) from April 2022. Though a surprise to many, it has been expected that the prime minister would need to recoup funds for the mass NHS spending –  with the increase raising £12bn a year to boost health and social care as a result of the Coronavirus pandemic.

As time progresses, we will update you in more detail, but as things stand at the moment, we are aware of the following details:

When does it apply from?

The NIC increase will take effect from 6 April 2022 and affect both employers and employees. From 6 April 2023, it will also apply to those who continue to work over the State Pension age.

Who does it affect?

It will apply to all employees (including deemed employees for class 1 NIC), employers, and the self-employed (including partners for class 4 NIC). For the self-employed, it will apply to those earning over the lower profits/income limit (currently £9,568 in 2021/22). The increase also applies to those over 66 years old and working from 6 April 2023; currently, those over state pension age are exempt from all NIC.

From 6 April 2023, the contribution will be rebranded as a health and social care levy, appearing individually on UK payslips. NIC rates will then revert to 2021/2022 levels.

Existing reliefs and allowances from employer’s secondary class 1 NIC will apply to the levy. This includes, amongst other reliefs and allowances, the £4,000 employment allowance, reliefs for employers of apprentices and newly employed veterans.

Dividend increase

Additionally, from 6 April 2022, the income tax rate for dividends will also be increased by 1.25%. The £2,000 dividend allowance will remain. The lower rate band will increase to 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.

Overview

The Government estimate tax revenue to rise by £36billion from the NIC increase over the next three years. However, it is estimated only a proportion, i.e. £5.4billion of £36billion raised, will go on social care. This, along with the added complications now imposed on an already complex UK tax system, will be met with much commentary in the next few months.

This article was written by Nikita Cooper, a director in the Tax team at Price Bailey. For further information relating to this article, you can contact Nikita using the form below.