In our last round-up, we reported on the Times article suggesting National Insurance contributions were likely to rise. That speculation has now been confirmed – almost! We now have a new Health & Social Care Levy.
Rather than being an increase in National Insurance contributions, the increase will be deemed a separate levy, the income from which will be ring fenced to pay towards health and social care. Despite the reclassification, the announcement of the Health & Social Care Levy breaks a Conservative party manifesto promise, but has been deemed necessary by government as a result of the huge impact of the pandemic.
What is happening?
- From April 2022 all taxpayers will pay 1.25% towards the new Health and Social Care Levy. At the same time Dividend Tax will also increase by the same amount, from 7.5% to 8.75%.
- Anyone earning less than £9,680 will not have to pay the levy.
- From April 2023, this increase will be extended to workers beyond state pension age.
- Existing NICs relief will also apply to the new levy. Therefore companies employing apprentices under 25 for example, will not pay the levy.
- A new care cost cap will be introduced to limit the amount people are expected to pay for their social care. From April 2023, anyone entering the care system will pay no more than £86,000 towards their care. Currently anyone entering the care system with more than £23,250 in assets must pay their care costs in full.
There has been significant political reaction to the announcement, and criticism by organisations such as the FSB as well. Mike Cherry of the FSB pointed out that the inclusion of Dividend Tax in the increase would adversely affect a section of the population who make huge sacrifices to keep UK Plc trading, yet received no support during the pandemic.
Other commentators have reported that the increase in employment costs as a result of the levy will make it harder still for employers to retain staff given continuing pressure from Coronavirus.
It could also be argued that the introduction of yet another new tax increases the complexity of the UKs tax system rather than simplifying it. We have to agree!
If you have any questions about the announcements, please get in touch.