Posted: 07 / 09 / 2021
On Tuesday 7th September 2021, Boris Johnson made a statement on the government’s plans for health and social care.
The Prime Minister praised the National Health Service’s support during “the worst pandemic in a century” and introduced a social care package which he called “the biggest catch-up programme” in the NHS’s history. In the announcement, he revealed details of a new, UK-wide, Health and Social Care Levy.
Below are some of the key takeaways from the announcement including the impact on businesses and individuals:
A new Health and Social Care Levy
- The Levy will make available around an additional £12 billion per year on average for health and social care across the UK
- The Levy will be introduced from April 2022, when National Insurance Contributions (“NICs”) for working age employees, self-employed and employers will increase by 1.25 per cent
- From April 2023, the Levy will be formally separated out and will also apply to individuals above State Pension age who are still in employment
- The Levy will apply to:
- Class 1 Employee NICs
- Class 1 Employer NICs
- Class 4 Self-Employed NICs
- The increase will not apply to Class 2 NICs (the flat rate paid by the Self-Employed with profits above the Small Profits Threshold, which is currently £6,515 per year) or Class 3 NICs (voluntary contributions).
- The Government will also increase the rates of dividend tax by 1.25 per cent from April 2022
|Health and Social Care Levy rates||Employee Main / higher rate||Employer||Self-employed Main / higher rate|
|Current NICs rates (2021-22)||12% / 2%||13.80%||9% / 2%|
|2022-23 NICs rates||13.25% / 3.25%||15.05%||10.25% / 3.25%|
|2023-24 NICs rates||12% / 2%||13.80%||9% / 2%|
|Dividend Tax Rates||Basic Rate||Higher Rate||Additional Rate|
|Current dividend tax rates (2021-22)||7.50%||32.50%||38.10%|
|2022-23 dividend tax rates||8.75%||33.75%||39.35%
Capping adult social care costs
- From October 2023, the Government will introduce a new £86,000 cap on the amount anyone in England will need to spend on their personal care over their lifetime.
- Anyone with assets of less than £20,000 will not have to make any contribution for their care from their savings or the value of their home
- Anyone with assets of between £20,000 and £100,000 will be eligible for some means-tested support which will come into effect in October 2023.
- If a person’s total assets are over £100,000, full fees must be paid. The maximum that a person will have to pay over their lifetime towards personal care costs will be £86,000.
- These reforms will apply to all adults in receipt of adult social care in England, no matter their age.
Although the rate increases have been quoted as 1.25%, it’s actually 2.5% as both employees NIC and employers NIC are subject to the increase. This is a clever move by the Government as it relies on the lack of awareness of how National Insurance works by the majority of the public.
There are no exemptions for specific sectors so the rate increases will apply to the hospitality sector which is arguably still significantly impacted by the lockdown measures.
This is particularly challenging for director shareholders, many of whom did not qualify for government support during the pandemic as they were remunerated via a low salary and dividend model. Many of our clients are only just getting their businesses back on track and so I’d question whether now is the right time for such a tax rise.
What about the impact for our clients?
- Increased cost of employment – The 1.25% increase to employers NIC rates pushes up the cost of hiring workers through the payroll. The additional increase should be deductible for UK corporation tax purposes. Clients should ensure they have appropriately budgeted for the increased cost of employment and review their remuneration strategy going forward
- Review remuneration packages – Employee perception of their pay package could be negatively impacted due to the additional 1.25% employee NIC contribution. Clients should look at how their remuneration packages are structured and, where relevant, consider salary sacrifice arrangements (such as pension contributions) which could help achieve NIC savings for the employer and employee
- Timing of employment income payments – The changes come in from April 2022. Depending upon the specific circumstance of the client, there may be benefit in accelerating payments (i.e. bonuses for example) ahead of the increase
- Review of profit extraction strategies – The changes will impact on the tax efficiency of salary vs. dividend profit extraction. Calculations and strategies should be reviewed ahead of the change to ensure they are optimised
- Impact on the operation of payroll – The new levy adds another element to an already complicated PAYE system. Clients operating their own payroll should ensure that software and technology they use has the functionality to accommodate these changes ahead of April 2022 and April 2023 respectively
- IR35 – Independent contractors impacted by IR35 rules could potentially be hit twice by the increase to both employees and employers NIC contributions. Contractors in this space should be aware of the changes ahead of any future fee negotiations with customers on new projects
If you have any questions or would like to discuss your specific circumstances in more detail, please do not hesitate to get in touch with Sedulo Tax Partner, Tom Whittome.
In the Prime Minister’s own words, the measures outlined on the 7th September 2021 reflect a “watershed moment” for the UK’s health and social care system.
The Covid pandemic has had a hugely detrimental impact on the NHS, requiring an overhaul of how services are operated and creating a growing bottleneck in care.
Some will argue the need for reform predates the Covid pandemic and that the announced changes are just “a sticking plaster” over an already creaking system.