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Health & Social Care Levy: how much more will you pay?

A levy to introduce a 1.25% rise in National Insurance Contributions (NICs) from April 2022 has been outlined by the government this month, known as the Health and Social Care Levy. The government says the changes are expected to raise £12bn a year.

health & social care levy

The extra tax take, which will go toward funding the NHS and ultimately social care, will be paid by both employers and workers. This will then become a separate tax on earned income from 2023. This will appear on payslips and will be calculated in the same way as NICs.

Which workers will the rise apply to?

The 1.25% increase applies to Class 4 contributions paid by the self-employed and ‘off-payroll’ personal service company workers as well as employees. Also Employers Class 1 payments will increase from 13.8% to 15.05% so businesses who employ staff will have to pay extra too. However, many small businesses can use a £4,000 employment allowance against their NIC liability.

To confirm people earning under £9,564 a year, or £797 a month, don’t have to pay National Insurance and won’t have to pay the new levy.

Dividend tax rate increases

Those who receive income from dividends will also see a 1.25% increase. This will equate to 8.75%, 33.75% and 39.35% for basic, higher and additional rate taxpayers respectively after the £2,000 tax free dividend allowance.

If you can control when you declare dividends it might be worth considering declaring dividends before the new Levy comes in so you can take advantage of the current lower rate of tax.

Click the following link to view the paper which sets out details of the proposals: 6.7688_CO_Command paper cover_060921 (publishing.service.gov.uk)

Example of changes

The following table breaks down what the NI hike will mean for your pay packet if you are an employee:

SalaryCurrent NI billExpected NI billChange
£15,000.00£651.84£719.74£67.90
£25,000.00£1,851.84£2,044.74£192.90
£35,000.00£3,051.84£3,369.74£317.90
£45,000.00£4,251.84£4,694.74£442.90
£55,000.00£4,951.84£5,519.74£567.90

Count On Cardens

If you have any questions on this, please feel free to contact the team at Cardens.

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