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Mini Budget 2022: Health and Social Care Levy abolished

Overview

On taking office, the new prime minister, Liz Truss, confirmed that she would scrap the Health and Social Care Levy. 

This levy was introduced in April 2022 and initially collected through a 1.25% increase in the rates of NICs paid by employees, employers and the self-employed. The Treasury has announced that these NICs increases will be reversed from 6 November at which point they will return to their 2021-22 levels (subject to some transitional arrangements for contributions collected annually). The plan for the levy to be charged separately next year has also been cancelled and the legislation to make these changes has already been presented to Parliament.  When the levy was introduced, there was a corresponding 1.25% increase in the rates at which dividend income is taxed. This increase will also be reversed but will not take effect until April 2023. To soften the impact of the NICs rises, in July, the point at which employees start to pay NICs was aligned with the income tax threshold. This will stay the same notwithstanding that the Health and Social Care Levy is to be scrapped. HMRC has said that it recognises the timeline for the NICs changes is tight and has written to employers and payroll software developers with practical guidance on what they should do.

The legislation to introduce a new UK-wide Health and Social Care Levy to fund adult social care reforms and enable the NHS to tackle the COVID-19 backlog was enacted in October 2021. The levy applied from April 2022 but has initially been collected by way of a 1.25% increase to rates of NICs paid by employees, employers and self- employed persons. Accordingly, since 6 April 2022, employment earnings have been 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%). When it was enacted, the intention was for a separate 1.25% levy to be introduced on both employees and employers from April 2023, at which point, rates of NICs would return to their tax year 2021-22 rates. To coincide with, but separate from the levy, rates of income tax on dividend income above the £2,000 tax-free dividend allowance were also increased by 1.25% from April 2022.

 

Return to Mini Budget 2022.

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