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Health and Social Care Levy

Overview

On 7 September 2021 the government announced the introduction of a new UK-wide Health and Social Care Levy, which will be used to pay for adult social care reforms and enable the NHS to tackle the COVID-19 backlog.

The Levy will apply from April 2022.  It will initially be collected by way of a 1.25% increase to rates of NICs paid by employees, employers and self-employed persons.  This means that employment earnings will be subject to both an increased rate of employee NICs (3.25% instead of 2% for higher earners) and at the same time an increased rate of employer NICs (15.05% instead of 13.8%).  The rates of Class 2 NICs (flat rate contributions payable by self-employed persons) and Class 3 NICs (voluntary contributions to fill gaps in a taxpayer's contributions) will be unaffected and the Levy will not be payable by those earning under the NICs thresholds (currently £9,568).  From April 2023 a separate 1.25% Levy (also on employers, employees and the self-employed) will be introduced and rates of NICs will return to their tax year 2021-22 rates.  This Levy will also be paid by individuals working above State Pension Age, unlike NICs which are not.

Rates of income tax on dividend income above the £2,000 tax-free dividend allowance will also be increased by 1.25% from April 2022.

The government estimates that £12 billion per annum will be raised by the introduction of the Levy and the increase in dividend tax rates.  The government acknowledges that it is a breach of the Conservative Party 2019 manifesto pledge not to increase rates of VAT, income tax or NICs and it will be interesting to see whether it has the appetite for any further personal tax rate increases.

Expected changes to rates over the next two tax years

 

 

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