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Tax changes for health & social care

The government has announced tax changes to fund £12 billion a year to be spent on the NHS and social care across the UK.

National Insurance contributions will increase by 1.25% 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, 1B and Class 4 (self-employed) National Insurance contributions.

The Levy

From April 2023, a new ringfenced Health and Social Care Levy of 1.25% will be introduced. This will apply to those who pay Class 1 (employee and employer), Class 1A and 1B and Class 4 (self-employed) National Insurance contributions and will be extended to those over State Pension age who are in work. Once the new Levy comes into effect, National Insurance rates will revert back to current levels.

The Levy will also apply to individuals above State Pension age who have employment income or profits from self-employment above £9,568. It will not be charged on pension income. The Levy will be administered by HMRC and collected through the current reporting and collection procedures for National Insurance contributions, PAYE and Income Tax self-assessment.

Tax Changes for all

Like National Insurance, Levy contributions will apply UK-wide, people will pay the same in England, Scotland, Wales and Northern Ireland.

From 2023 to 2024, Levy contributions will appear as a separate item on payslips. A generic message may appear on some payslips in the 2020/23 tax year.

For Self Employed

For those self-employed individuals who pay National Insurance contributions through the annual self-assessment process, the rate increase will first be reported through the 2022/23 tax return in January 2024. The new Levy will first be reported through the 2023 to 2024 tax return in January 2025.

The government will also increase the rate of income tax paid by people who receive dividend income from shares by 1.25% from April 2022.

Impact on individuals (including those over State Pension age from 2023 with earnings over £9,568)

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.

Impact on employers

The Levy will also apply to secondary Class 1 National Insurance contributions. Existing National Insurance contributions reliefs and allowances will apply to the Levy.

Impact on dividend holders

Those with dividend income, like business owners and investors, will report through PAYE or the annual Self Assessment process.

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