The Health and Social Care levy to help aid the health and social care has been announced by the Government and will come into action from 6th April 2023. This article summarises the key features of the new levy and what employers need to consider as they prepare for it introduction.

What are the current proposals?

  • From 6 April 2022, the rates of Class 1 and Class 4 national insurance will be increased by 1.25%, and shown as below:
 Percentage (%)Annual Limit
Class 1 NICs – Employee13.25%Above £9,568 primary threshold
Class 1 NICs – Employee3.25%Above £50,270 upper earnings limit
Class 1 NICs – Employer15.05%Above £8,840
Class 4 NICs – Self-employed10.25%Above £9,568 lower profits limit
Class 4 NICs – Self-employed3.25%Above £50,270 upper earnings limit
  • From 6 April 2023, it will be called the new Health and Social Care Levy and charged at a rate of 1.25% on earned income which will apply to employers, employees and the self-employed (including partners).
  • This will be shown separately on payslips and self-assessment payments and will be collected via PAYE and self-assessment.

Exemption

  • This levy will not apply to the individuals who are benefiting from existing NIC reliefs (e.g. for employees under the age of 21, apprentices under 25 and their yearly gross earnings are below £50,270, qualifying freeport employees with yearly gross earnings below £25,000).

Impact on individuals and employers

The levy will be paid by employed and self-employed individuals earning above the primary threshold and lower profits limit (£9,568 in 2021/22).

Typically, the impact on an employee earning, say, £25,000 would mean both employee and employer would be paying an extra £193 each of NICs.  For the self-employed, they would need to pay an extra £193 of Class 4 NICs.

Impact on business and employers

This new levy will create significant extra employment costs for many businesses, for example, one-off costs to updating employee payroll records to reflect this change and the cost of which may be passed onto customers.

However, the £4,000 annual Employment Allowance for NIC can be used against the new levy as well as NIC liabilities. 

As employers, you may consider to offering your staff employee benefits (i.e. salary sacrifice arrangement or making a contribution to their registered pension scheme etc.) which have a low tax or NIC payable value as electric vehicles that will be attractive to employees.

For those privately owned business owners will need to carefully think through and work out the impact of these changes, especially those that typically take dividends as well as salary.

If you would like a clear picture on how this may affect you, contact us today
info@signaturetax.co.uk
0333 009 0801

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