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 email@example.com to find out how we can help.
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