Preparing for the UK’s Health and Social Care Levy

February 18, 2022 9:47 am Published by Karen

woman sat at kitchen table working out finances on laptop From April 2022, the UK’s Health and Social Care (HSC) Levy, announced on 7^th September 2021, will come into effect. HMRC have released guidance for the upcoming changes and this blog post will aim to clarify what the new plans involve and how this will affect you.

What is the Health and Social Care Levy?

The Health and Social Care Levy is an additional tax for UK taxpayers and businesses, with the aim to provide increased funding for the National Health Service, with a portion of the funds being transferred into health and social care systems across the UK. The Government estimates that the introduction of the levy will raise £12 billion a year and will ease the pressure on the NHS post-pandemic.

The levy is applicable to employers and employees liable for Class 1 National Insurance Contributions (NICs) and self-employed individuals liable for Class 4 NICs. For tax year 2022/23 the levy will be collected by means of an increase to National Insurance contributions of 1.25%. Following this, from April 2023, a formal legal tax of 1.25% will replace the increase in National Insurance rates which will return to their previous 2021/22 level.

How Does it Work?

Between 6^th April 2022 – 5^th April 2023, if you are an employer, employee or self-employed (and below the State Pension age) you will pay the 1.25% increase to National Insurance contributions.

From 6^th April 2023, you will pay a separate levy of 1.25% if you fall into the following classes for National Insurance contributions:

Class 1 that are above the primary and secondary thresholds
Class 1A and Class 1B for employers
Class 4 for the self-employed

All existing National Insurance contribution reliefs will apply to the Health and Social Care Levy for:

The levy will be collected by HMRC through existing PAYE payroll and Self-Assessment systems.

How Will it Affect Employers?

From April 6^th 2022, until April 5^th 2023, businesses paying either Class 1, Class 1A or Class 1B National Insurance Contributions for employees will pay the 1.25% increase in contributions.

From 6^th April 2023, a new Health and Social Care Levy will be identified on payslips and remunerated via an update to the PAYE system. Employees will contribute 1.25% of their before-tax salary, while employers will pay 1.25%, making for a combined total of 2.5% per individual.

Although the initial increase in National Insurance contributions does not apply to those above State Pension age, from April 2023, the separate Health and Social Care Levy will apply to individuals above State Pension age who have employment income above £9,568.

Earnings on which National Insurance contributions are calculated will likewise be used to calculate the separate HSC levy, and existing employer reliefs and allowances that apply to NI will also apply to the levy.

For all employers who pay employers National Insurance it is important to calculate and budget for the extra tax burden and factor into your business cashflow from April 2022 onwards.

Exceptions for When Employers Will Not Have to Pay the 1.25% HSC Levy

If your employees fall into one of the following categories and earns less than £50,270 (or £25,000 for Freeport employees) per year, existing reliefs will apply for:

Employees under the age of 21
Apprentices under the age of 25
Employees in Freeports
Armed Forces veterans

The Impact on Payroll

The main considerations for employers relate to ensuring payroll software is up to date and configured for the coming changes. As of April 2022, you should ensure your National Insurance contribution categories are updated with the added 1.25%. From April 2023, employers should then ensure these NIC rates are reverted to existing 2021/22 rates.

As of April 2023, the new HSC levy will need to be applied to salaries where appropriate. The addition of this third tax causes a significant change to how payrolls are handled and so employers should prepare to update software with added features as necessary.

If your business still relies on older desktop-based accounting software, you should think about upgrading to a newer version or switching instead to Cloud payroll software which will almost certainly be automatically updated in time for the changes.

HMRC is asking employers, where appropriate, to include the following message on payslips in reference to the temporarily increased NICs to help employees understand what they are paying for:

“1.25% uplift in NICs, funds NHS, health & social care”

From April 2023, the HSC levy must be reported as a new item within payroll and should be shown on payslips as a separate 1.25% tax for employees eligible to pay it.

How Will it Affect Employees?

From April 2022 until April 2023, employees that pay Class 1 National Insurance contributions above the primary threshold must pay the temporary 1.25% increase to National Insurance contributions. These employees must then pay the separate HSC levy from April 2023.

Employees above the State Pension age and who earn above the primary threshold are exempt from paying the temporary increase to National Insurance contributions as they currently do not pay NICs. From April 2023 however, these employees must pay the separate 1.25% levy for health and social care.

Employers will deduct the HSC levy from employee earnings and will deposit the amount to HMRC on behalf of employees using their PAYE system.

How Will it Affect Those Who are Self Employed?

Those who are eligible to pay the HSC levy will do so as with other taxes, using self-assessment. The first deduction of this HSC levy for tax year 2022/23 should be paid on your 2024 tax return, in January 2025.

The table below indicates whether self-employed individuals will have to pay one or both of the following:

The temporary 1.25% increase to NICs from April 2022-23
The separate 1.25% HSC levy from April 2023

Self-employed Type	Compulsory payment of the 1.25% increase to NICs from April 2022 – 23	Compulsory payment of the separate 1.25% HSC levy from April 2023
Those with profits more than the Lower Profits Limit for Class 4 National Insurance Contributions	Yes	Yes
Those who pay Class 2 National Insurance contributions only	No – this increase does not apply to Class 2 National Insurance Contributions	No – this levy does not apply to Class 2 National Insurance Contributions
Those above the state pension age before 6^th April 2022 with profits more than the Lower Profits limit	No – These individuals do not pay National Insurance contributions	Yes – This should be paid using Self-assessment
Those who will reach State Pension age in the tax year April 2022 to 5^th April 2023 with profits more than the Lower Profit Limit	Yes – These individuals will continue paying Class 4 contributions until the end of the tax year in which they will reach State Pension age	Yes

How will it Affect Those Paid in Dividends?

Those receiving income from dividends do not currently pay National Insurance Contributions and therefore will not be subject to the new HSC levy. They will, however, be expected to pay a 1.25% increase in taxes on dividend income from April 2022.

Need a Hand?

If you need support preparing for the Health and Social Care Levy, our professional team can assist by assessing your current payroll software and advising the best option for your business. We can also offer tax advice and help you plan for the coming changes.

Schedule a free, no-obligation chat with one of our team members and let us support you and your business. Give us a call on 0117 379 0810 or fill out a contact form to discuss your requirements.

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Karen

Karen joined FCF from an administration background and completed her CIPP qualification with FCF in May 2016. Karen heads up our payroll department and ensures that FCF delivers a consistently high quality service to payroll clients and their employees.

Karen specialises in direct payment payrolls for local authorities.

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