Health & Social Care Levy from April 2022

1st February 2022

As has been widely trailed, a new Health & Social Care Levy is being introduced on 6 April 2022.

This will initially take the form of a temporary 1.25% increase in National Insurance Contributions (NICs), to be replaced on 6 April 2023 by a separate levy - with NICs returning to their previous rates.

See our separate article on NIC rates and thresholds from April 2022.

There has been much media speculation that the levy will be postponed. However, The Times reported on 29 January 2022 that the Chancellor and the Prime Minister agreed that the levy will proceed as planned.

We have previously looked at the pros and cons of the levy, which you can read in our earlier in-depth article.

On 31 January 2022, HMRC issued new guidance on the levy as it affects employers, employees and the self-employed. But it is also important to note that the levy will also apply to dividend income, which we looked at in our earlier article.

National Insurance

As stated above, there will be a one-year temporary increase in the rate of NIC from 6 April 2022, returning to the earlier level a year later.

For tax year 6 April 2022 to 5 April 2023, Employer Class 1, employee Class 1, Class 1A, Class 1B and Class 4 NICs will increase by 1.25%.

From 6 April 2023, NIC rates return to 2021/22 levels, and the levy will become a separate new tax of 1.25%.

From 6 April 2023 - employers

The separate levy of 1.25% will apply to the same amounts for the following classes of NICs:

  • Class 1 above the primary and secondary thresholds
  • Class 1A and Class 1B for employers
  • Class 4 for the self-employed

All existing NIC reliefs will apply to the separate levy for:

  • employees under the age of 21
  • apprentices under the age of 25
  • qualifying Freeport employees
  • those eligible for the Employment Allowance
  • armed forces veterans

Like NICs, the levy will be collected via the PAYE scheme from 6 April 2023. From this date, the levy is also payable by employers for employees over the State Pension age.

Further information about the levy will be published later in the year.

The levy is not payable where an employee falls into one of the following categories and earns less than £50,270 (or £25,000 for Freeport employees) per year:

  • apprentices under the age of 25
  • employees under the age of 21
  • armed forces veterans
  • employees in Freeports (see our separate Freeports: Plymouth article and HMRC's consultation issued in January 2022))

(To be exempt from the levy, Freeport employees have to spend 60% of their working time in a Freeport in which their employer also has a business premises, unless adjustments to their working patterns have been made due to: disability, maternity and pregnancy.)

Payslips

HMRC is asking employers to include the following message on payslips 

‘1.25% uplift in NICs, funds NHS, health & social care’.

From April 2023, the levy will be reported as a new tax through RTI and will need to be shown on payslips as a separate 1.25% levy.

Self-employed

HMRC has produced a table showing if the temporary NIC rise and then the levy have to be paid by the self-employed.

Self-employed type Do I pay the additional 1.25% NIC for tax year 6 April 2022 to 5 April 2023? Do I pay the separate 1.25% levy from 6 April 2023?
I have profits more than the Lower Profits Limit for Class 4 NICs Yes Yes
I pay Class 2 NICs only No — the levy does not apply to Class 2 NICs No — the levy does not apply to Class 2 NICs
I’m above the State Pension age before 6 April 2022 with profits more than the Lower Profits Limit No — because you do not pay NICs Yes — you must pay this using Self Assessment
I reach State Pension age in the tax year 2022/23 with profits more than the Lower Profit Limit Yes — because you’ll continue paying Class 4 NICs until the end of the tax year in which you reach State Pension age Yes

The levy will be payable via self assessment for the first time on the 2023/24 tax return in January 2025.

Employees

HMRC has produced a table showing if the temporary NIC rise and then the levy have to be paid by employees.

Employee type Do I pay the additional 1.25% NIC for tax year 6 April 2022 to 5 April 2023? Do I pay the separate 1.25% levy from 6 April 2023?
I pay Class 1 NICs above the primary threshold Yes Yes
I’m above the State Pension age and earn above the primary threshold No — because you do not pay NICs Yes

The levy will be collected via PAYE.

Above the State Pension age

HMRC has produced a table for those above state pension age showing if the temporary NIC rise and then the levy have to be paid.

Above State Pension age type Do I pay the additional 1.25% NIC for tax year 6 April 2022 to 5 April 2023? Do I pay the separate 1.25% levy from 6 April 2023?
I’m an employee above the State Pension age earning less than the primary threshold No — because you do not pay NICs No
I’m an employee above the State Pension age earning more than the primary threshold (Class 1) No — because you do not pay NICs Yes — your employer will deduct the levy for you using PAYE payroll
I’m self-employed and I’m above the State Pension age before 6 April 2022 with profits more than the Lower Profits Limit No — because you do not pay NICs Yes — you must pay this using Self Assessment
I’m self-employed and I reach State Pension age in the tax year 6 April 2022 to 5 April 2023 with profits more than the Lower Profit Limit Yes — because you’ll continue paying Class 4 NICs until the end of the tax year in which you reach State Pension age Yes

Dividends

From 6 April 2022 dividend tax rates will increase by 1.25%

  • 8.75% at the basic rate (up from 7.5%)
  • 33.75% at the higher rate (up from 32.5%)
  • 39.35% at the additional rate (up from 38.1%)

The 1.25% extra will also apply to overdrawn directors' loans from 6 April 2022 from the current rate of 32.5% to 33.75%.

Planning points

Subject to commercial and other considerations, director shareholders may wish to consider taking a dividend before 6 April 2022 to avoid the tax increase. But bear in mind:

  • The amount of dividends already received in the current tax year.
  • Your salary/dividend mix.
  • Any co-ownership of shares in your company with your spouse.
  • Profit expectations.

Further information

You can download a full summary and tax tables from the Autumn 2021 Budget here:

You can also watch our Post-Budget Webinar on YouTube.

If you have any questions regarding any of the above, please contact your normal Bishop Fleming contact or a member of the Payroll Services team or the Employer Solutions team

For more information on employer issues check out our Payroll Knowledge Hub and our Employer Solutions Knowledge Hub.

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