Boris Johnson announced his plans to set out a new tax rise for NHS and Social Care even though this breaks his manifesto pledge.
The new Health and Social Care Tax will cost employees and the self employed an additional 1.25% in National Insurance contributions from 5th April 2022. It is also important to note that these changes also effect employers’ national insurance, and that Dividend Tax is also set to rise by 1.25%.
Any state pensioners who continue to work are also expected to pay this levy from April 2023/2024. HMRC need time to update their IT systems as the new tax is given its new name of ‘Health and Social Care Tax’ and is separated from National Insurance. This is so that the money can be ring-fenced specifically for the NHS and Social Care.
So how will this affect me?
Employees currently pay 12% in Class 1 NICs on earnings between £9,568 and £50,270, and 2% on earnings above that. All these figures are due to rise by 1.25% meaning 13.25% and 3.25% will be the new national insurance percentages for employees.
Self-employed individuals pay National Insurance at the main rate of 9% and 2% at the higher rate, these will rise to 10.25% and 3.25% retrospectively.
The BBC have highlighted a useful graph by HMRC which shows the impact on your income due to the increase in National Insurance, this can be found along with further information here.
It is important to remember that this increase is also going to impact employers, who will also see their national insurance bills increase by 1.25%.
However, the Employment Allowance allows eligible employers to reduce their NICs liability by up to £4,000 per year and this means the Government believe that 40% of small business owners will paying nothing extra in employer NICs.
Directors of limited companies will be hit again as income from share dividends also see a 1.25% tax rate increase. This will increase the bands from 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers to 8.75%, 33.75% and 39.35%.
If you are concerned about the impact these changes have on your business and its ability to manage employment costs, please contact your individual account manager who will be able to discuss this with you on 01249 465 435 or 01793 378 586.
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