Your guide to the new Health and Social Care Levy

The government recently announced a rise in National Insurance rates, dubbed a “Health and Social Care Levy”. Despite a Conservative manifesto promise not to increase taxes, the economic impact of the coronavirus pandemic has also led to increases to Dividend Tax and the suspension of the State Pension triple lock. The National Insurance increase will come into force from April 2022. Keep reading for a guide to the levy and its potential impact.

Your guide to the new Health and Social Care Levy
Ermin Fosse

Ermin Fosse


Extra funds for social care and a “health-based Covid response”

From April 2022, National Insurance contributions (NICs) will increase by 1.25 percentage points, a move that is expected to raise an additional £12 billion a year for the next three years.

The government has confirmed that during this period, £5.4 billion will go towards social care, with another £8.9 billion earmarked for what it calls a “health-based Covid response”. This balance will begin to shift, with more funds going directly towards social care, as the NHS backlog clears.

Figures from the Guardian confirm that an individual earning a salary of £50,000 could see their NICs rise from £4,852 to £5,357 each tax year, effectively a £505 tax increase. The annual increase for those earning more than £100,000 will be around £1,130.

The additional contribution will appear on payslips as a separate “Health and Social Care Levy” from April 2023.

Employers, employees, and workers over State Pension age will all be affected

The 1.25% rise will affect employees and employers from April 2022.

The following year, the levy will also be applied to working pensioners (those over State Pension age) who will pay NICs on their earnings for the first time.

The number of people aged 65 and over in work has tripled in the last 20 years, providing the Treasury with a growing source of revenue under the new measure.

Source: The Telegraph

It is anticipated that around 1 million working pensioners will be affected, with contributions starting at a rate of 1.25% from April 2023.

The impact of the levy on individuals will vary

The Health and Social Care Levy will decrease take-home pay for employees, as well as costing employers.

For business owners, the levy will need to be understood in the context of other recent tax changes, including:

  • The increase in Corporation Tax to 25% for businesses whose profits exceed £250,000 (announced in the chancellor’s March Budget)
  • The rise in Dividend Tax (announced at the same time as the Health and Social Care Levy).

The impact on workers of State Pension age will vary. For those who remain in work out of financial necessity, the extra tax charge will need to be factored into spending and pension saving.

Individuals might consider revisiting their investments (gains on which are not subject to NICs) or increasing the pension contributions they make via salary sacrifice.

For those working as a means to remain socially and physically active, the additional tax may prompt a change to fewer hours or even a move into the voluntary sector.

It is also worth noting that further changes could be imminent. The chancellor’s Autumn Budget will be delivered on 27th October and tax changes, to Inheritance Tax (IHT) and Capital Gains Tax (CGT) for example, could be announced.

Get ready for the end of the tax year but don’t alter your long-term financial plans

With tax thresholds and allowances – including the Lifetime Allowance, the CGT allowance and the IHT nil-rate band – already frozen, it isn’t too early to start planning for the end of the tax year. Making the most of available reliefs and allowances now could make a significant difference.

It is also important to remember that a financial plan is based on long-term goals. Although the government has announced a raft of tax changes already this year, with the potential for more on the way, it is unlikely that any of the rule changes will alter your long-term plans.

If your dream retirement looks the same as it did at the start of the year, a large-scale overhaul is unlikely to be needed.

Get in touch

If you are concerned about the impact of the Health and Social Care Levy, or any other recent tax changes, on your financial plans, get in touch now. Email to find out how we can help.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All content is based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

This article is distributed for information purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily Ermin Fosse and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Errors and omissions excepted.

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