New Health and Social Care Levy

Introduction

The Prime Minister announced on 7 September 2021 new tax raising measures which will take effect from 6 April 2022 as part of the government’s plan to pay for health and social care. These measures are collectively referred to as the Health and Social Care Levy. The extra amount raised through the changes will be ringfenced to fund investment in health and social care. The changes will affect employees, employers, the self-employed and individuals receiving dividends.

Tax measures

The new tax measures will initially consist of two elements: an increase in the rates of national insurance contributions (which will be replaced by an entirely new levy) and an increase in the income tax rates that apply to dividends.

National insurance contributions (NIC)

From 6 April 2022 there will be a 1.25% increase in the rates of Class 1 NIC for employees and employers and Class 4 NIC for the self-employed. From 6 April 2023 the rates will return to their current levels but there will be a new standalone 1.25% Health and Social Care Levy on the earnings and/or profits that are subject to NIC.

It was announced in the Spring Statement on 23 March 2022 that the Primary Threshold and Lower Profits Limit will be aligned to the personal allowance (£12,570) from 6 July 2022, reducing the amount of earnings/profits that are subject to NIC. This gives a weekly paid employee an effective threshold of £11,908 for 2022/23 as a whole (directors will have a fixed annual threshold of £11,908). Similarly, the Lower Profits Limit will be £11,908 for 2022/23.

Workers who are over the state pension age, who are not currently liable to NIC, will be subject to the 1.25% levy from 6 April 2023 to the extent that their earnings exceed the primary threshold (£12,570 in 2022/23). Self-employed individuals with profits exceeding the lower profits limit of £12,570 are similarly affected.

The rates are summarised as follows (earnings and profits thresholds are based on the 2022/23 amounts, which may change in future years; 2021/22 thresholds are published here):

Income tax on dividends

Dividends are not subject to NIC and will not be subject to the new levy. They will instead be subject to increased income tax rates. With the exception of the £2,000 nil rate band, all dividend income tax rates for individuals and trustees will increase by 1.25%. Where other tax rates are directly linked to those applying to the individual dividend tax rates (e.g. the 32.5% rate that applies to loans to participators of close companies or the 7.5% rate that applies to certain trustees), these will increase automatically. The dividend trust rate of 38.1% will be increased to 39.35%, in line with the increase in additional rate for individuals.

The dividend income tax rates for individuals are summarised as follows:

Find out more...

This note reflects the law in force as at 4 April 2022. Further information on the government’s policy announcements are set out in Build Back Better: Our Plan for Health and Social Care and Spring Statement 2022: Personal Tax Factsheet. Please be aware that this note does not cover all aspects of this subject. Our Budget Calculator provides an estimate of the effects of the above changes for individuals in 2022/23. To find out more about any aspect of the above, please discuss with your usual Deloitte contact. If you do not have a usual contact, please contact Rachel McEleney.

For further information visit our website at www.deloitte.co.uk.