Health and Social Care Levy – 1.25% tax hits workers and employers

From April 2022 every worker in Britain will pay a new 1.25% tax on their earnings to fund the NHS and reform social care. This news was announced beginning of September 2021 by Boris Johnson.

Boris Johnson said he would raise £36bn for frontline services in the next three years and be the “biggest catch-up programme in the NHS’ history”. He pledged that by 2024/25 there would be the ability to help 30% more elective patients than before the pandemic.

According to the government, the levy is based on the principle that every individual should contribute according to their means. Those who earn more pay more. Additional rate taxpayers make up just 2% of individuals affected but will contribute nearly 20% of the revenue raised from individuals. The highest earning 14% will pay around half the revenues.

This health and social care levy will begin as a 1.25% rise in National Insurance from April 2022, paid by employers and workers.

Then, from April 2023, National Insurance will return its previous levels and a new Health and Care Tax will appear on employee’s payslips. This increase will also apply to individuals who continue to work after state retirement age.   Those  earning £9,564 or less will not have to pay either National Insurance or the levy.

The increase will mean an individual earning £20,000 will pay an additional £130 per year rising to £1,130 in respect of a £100,000 salary.

The increase will not apply to Class 2 or Class 3 NICs.

Main changes to care funding:

• National insurance to raise by 1.25% from April next year
  
• Income tax payable on dividends will also increase by 1.25% at the same time.
  (Rates will rise from 7.5%,32.5% & 38.1% to 8 ¾%, 33 ¾% & 39.35% respectively).
  
• From October 2023, a cap of £86,000 will be introduced on care costs in England meaning nobody will pay more than £86,000 for their social care regardless of their assets.
  
• For those with assets less than £20,000 will not pay a penny for care.  For those with assets between £20,000 and £100,000 care costs will be subsidised.
  

Existing NICs reliefs to support employers will apply to the Levy.

Companies employing apprentices under the age of 25, all people under the age of 21, veterans and employers in Freeports will not pay the Levy for these employees as long as their yearly gross earnings are less than £50,270, or £25,000 for new Freeport employees.

If you have any questions regarding any of the above, please contact us for information.