The aim of the Levy is to raise an extra £12bn per year to provide additional financial support to the NHS and to fund reforming social care. The plan is also to create a new integrated system between health and social care focusing on improving outcomes across all four nations of the UK. The devolved governments of Northern Ireland, Scotland and Wales will decide how they will apply the funds arising from their share of the Levy.
What is the Levy?
The Health and Social Care Levy is an additional 1.25% charge on earnings, employment benefits, PAYE Settlement agreements and dividends.
How will the Levy be collected?
Where employed earnings are concerned, the Levy will be collected through the PAYE system:
If, however, you are self-employed, the 1.25% will be included in your Class 4 NIC payments. From April 2022 the Levy will likely be payable in January and July each year.
For most self-employed, the likely first payment date may be 31st January 2024, unless you are over state pensionable age, in which case the first payment may be as late as 31st January 2025.
If you pay tax on dividends, the Levy will be added to the present dividend rates. Depending on your overall circumstances the Levy on the dividends may be payable either:
With regards to benefits, the Class 1A additional amount will need to be paid by 19th July following the end of the tax year.
When will the first Levy be applied?
With regards to earned income, it will be applied from 6th April 2022 - unless you are a worker over state pensionable age, in which case it will be from 6th April 2023.
For dividend income, it will be from 6th April 2022.
What will the new rates be from April 2022?
Employers' NIC will increase from 13.8% to 15.05% on earnings above £8,840.
Employees' NIC will increase from 12% to 13.25% on earnings between £9,568 and £50,270.
Employees' NIC will increase from 2% to 3.25% on earnings in excess of £50,270.
Where your total income is not more than £50,270, the dividend rate will increase from 7.5% to 8.75%.
Where your total income is between £50,271 and £150,000, the dividend rate will increase from 32.5% to 33.75%.
Where your total income is in excess of £150,000, the dividend rate will increase from 38.1% to 39.35%.
What might the financial impact of the Levy be on individuals?
Keep in mind that it is just an estimate, but we've summarised the potential impact for an individual:
Individual earning £20,000 – Additional cost £130. Employer cost £140
Individual earning £50,000 – Additional cost £505. Employer cost £515
Individual earning £100,000 – Additional cost £1,130. Employer cost £1,140
Individual in receipt of a dividend of £20,000 – Additional cost £225
Individual in receipt of a dividend of £50,000 – Additional cost £600
When will the Levy not apply?
This Levy will not apply to:
Self-employed Class 2 NIC and the voluntary Class 3 NIC.
People earning below the employee's NIC threshold presently set at £9,568 and for employers, the NIC threshold is currently at £8,840.
If your dividends are covered by your personal allowance (£12,570) and/or the tax-free dividend allowance of £2,000.
Businesses who are employing apprentices under the age of 25, as long as their gross yearly income is less than £50,270.
Businesses who are employing anybody under the age of 21, as long as their gross yearly income is less than £50,270.
Businesses who are employing veterans from the armed forces where they are entitled to employers NIC veterans relief, as long as their gross yearly income is less than £50,270.
Employers operating within Freeports, where they are eligible for employers NIC relief in respect of employing new employees, as long as their gross yearly income does not exceed £25,000.
Dividends in an ISA will not be affected.
Note: The employment allowance (currently £4,000) can be offset against the Levy.
Are there ways of mitigating against the Levy?
There could be options on how to mitigate the potential increase in your NIC contributions. For instance:
Bringing forward the payment of dividends and bonuses pre 6th April 2022?
Restructuring the shareholding within your company to maximise the use of the £2,000 dividend allowance?
Transferring some of your shares to your spouse or civil partner to maximise the use of the £2,000 dividend allowance?
Bringing a family member into the business to make use of the first £9,568 earned income free of the Levy?
Investing more through an ISA.
Please note that this is preliminary guidance only and therefore may be subject to change, more information can be found over on GOV.UK.
If you would like any guidance on how the new Health and Social Care Levy could impact you or your business, get in touch with our team.
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