Health and Social Care Levy
The Health and Social Care Levy (HSCL) will be set at 1.25% of earnings from employment and self employment. The Government wanted to impose this tax in 2022, but HMRC computer systems cannot be re- formulated in time.
National Insurance increases
Instead, it has decided to increase National Insurance Contributions (NIC) rates by 1.25 percentage points for just one year from 6 April 2022.
Employers will pay a total of 15.05% NIC on all employees’ wages and benefits above £8,840 per year, if an exemption does not apply (see below). Employees will pay 13.25% NIC on their salary between £9,568 and £50,270 per year. Any salary or bonus above £50,270 will carry NIC at 3.25%.
Self-employed individuals will pay 10.25% NIC on their profits between £9,568 and £50,270 and 3.25% on any profits in excess of £50,270 per year.
From 6 April 2023 the Government has said it will reduce all those NIC rates by 1.25 percentage points and the same amount of tax will be collected as the HSCL. The monetary effect for each taxpayer and employer will be the same.
However, one further group of taxpayers will pay the new levy from April 2023: those who have reached state retirement age and have a job (or are self-employed) and earn at least £184 per week. At present taxpayers who are over state pension age do not pay NIC on their wages or profits, although their employers do.
Dividend tax increases
To counter the charge that investors would not pay the HSCL, the Government is increasing the rates of income tax charged on dividends received from 6 April 2022. However, income tax on interest and property income will not rise.
Dividends, interest and property income are not subject to NIC, although some landlords pay the flat rate of Class 2 at £3.05 per week.
The first £2,000 of dividend income per year and dividends within ISAs will still be tax- free, but any additional dividend income will be subject to tax at the following rates:
Dividends falling within
|Basic rate band||8.75%|
|Higher rate band||33.75%|
|Additional rate band||39.35%|
This tax increase will hit family companies where the owners take out most of their profits as dividends.
Employers’ NIC reliefs
The NIC rise will increase the cost for every employer by an additional 1.25% of employees’ salaries and benefits. However, there are a number of allowances and zero rates that employers can claim to reduce the amount of employers’ Class 1 NIC payable on employees’ wages.
For example, a zero rate can be claimed for the following categories of employees, on their wages up to £50,270 per year:
- Anyone aged under 21
- Apprentices aged under 25
- Ex-forces personnel, for their first 12 months of civilian employment.
From 6 April 2022, a zero rate of employers’ Class 1 NIC will be available on the wages of employees who work at least 60% of their time in a Freeport, on a salary of up to £25,000 per year.
Where a zero rate of employers’ Class 1 NIC applies, those wages will also be exempt from the employer’s HSCL from April 2023.
The employment allowance of £4,000 per year can also be claimed to set against employer’s Class 1 NIC if the total employer’s class 1 NIC liability for the previous tax year was less than £100,000, subject to certain other conditions. For example, sole director companies can’t claim the employment allowance if the director is the only employee.