Tax changes for Health and Social Care

In a bid to boost health and social care in the wake of the pandemic, the Prime Minister announced tax changes to fund £12 billion a year to be spent on the NHS and social care across the UK

The rise in NI will help to fund the reform of social care across the UK. There are concerns among MPs that the majority of the money will be consumed by the NHS, which is also receiving a boost from the NI increase.

The Prime Minister wants to see the backlog in the NHS cleared as soon as possible. He said the majority of the £36bn funds raised by the tax rise will go towards catching up on this backlog.

£5.4bn of the money raised from the higher tax rate will also go towards changes to the social care system over the next three years, with more promised after that.

The Key Proposals of the Health and Social Care Reform

• People will pay now more than £86,000 in care costs over their lifetime, from October 2023. This amount doesn’t include food and accommodation
• On reaching the £86,000 cap, any ongoing costs for personal care will be paid for by local authorities
• Those with between £20,000 and £100,000 in assets will get means-tested help towards costs from their local council
• Those with less than £20,000 will not have to pay towards care costs from their assets at all but might have to contribute from their income
• The tax will be raised through a 1.25% rise in National Insurance to be paid by working people and their employers from next April
• Income from share dividends – earned by those who own shares in companies – will also see a 1.25% tax rate increase
• The NI rise will cost £255 a year for someone earning £30,000, and £505 a year for someone on £50,000, the government says?

National Insurance Contributions for Health and Social Care Reform

National Insurance contributions (NICs) will increase by 1.25% for one year only for employees, employers and the self-employed from‌‌ ‌April‌‌ ‌2022. This will cover both Class 1 (employee and employer), Class 1A and 1B and Class 4 (self-employed) NICs. Those above State Pension Age are not impacted by the April 2022 changes.

From April 2023, a new ringfenced Health and Social Care Levy of 1.25% will be introduced which will apply to those who pay Class 1 (employee and employer), Class 1A and 1B and Class 4 (self-employed) NICs and will also be extended to those over State Pension age who are in work. When the new levy comes into effect, National Insurance rates will revert back to current levels.

The levy will also apply to individuals above State Pension age with employment income or profits from self-employment above £9,568.

The levy will be administered by HMRC and collected through the current reporting and collection procedures for NICs – Pay As You Earn and Income Tax Self Assessment.

Like National Insurance, levy contributions will apply UK-wide, people will pay the same in England, Scotland, Wales and Northern Ireland.

From 2023-24, levy contributions will need to appear as a separate item on payslips. Where possible a generic message should be included payslips for the next tax year (2022-23). More information on payslip requirements will be available in due course.

Tax on share dividends will also go up by 1.25% to prevent an incentive for people to work as a company and be paid in dividends, rather than as employees paid a salary.

If you own shares in a company then you may receive dividend payments. You may need to pay tax on that income above a tax-free allowance. The increases will appear on payslips as a separate Health & Social Care levy from 2023.