8th September 2021
As expected, the Prime Minister has announced a controversial 1.25% National Insurance levy which will be payable by “individuals and businesses, including those above state pension age” with the projected £12bn annual income to be ringfenced to pay for health and social care. It is worth noting that workers who have reached state retirement age from 2023/24 will be expected to pay the levy.
There is a distinct lack of detail for what appears to be a new third tax at this stage, and we will probably have to wait for the Budget, scheduled for 27 October, for visibility of the additional legislation likely to be introduced.
As well as the National Insurance increase (dressed up as a Health and Social Care Levy), tax on dividends will also go up by 1.25%. These changes will come into effect from April 2022. Also, from 2023, the NI increase will appear on payslips as a separate Health and Social Care levy.
The added layer of complexity and the way the new tax has been introduced is likely to lead to a greater appetite for tax planning and a hark back to the old days of more aggressive avoidance schemes.
From 1 April 2022, there will be a temporary 1.25% increase in class 1 (employee) and class 4 (self-employed) national insurance contributions (NIC) paid by workers, as well as a 1.25% increase in class 1 secondary NIC paid by employers (so 2.5% in total). The 1.25% increase will also apply to class 1A and class 1B NIC paid by employers. The increase will apply to employed (including deemed employees) and self-employed individuals and partners earning above the class 1 primary threshold/class 4 lower profits limit (currently £9,568 in 2021/22). Employers will pay the additional 1.25% for employees earning above the class 1 secondary threshold (currently £8,840 in 2021/22). Existing reliefs and allowances from employer’s secondary class 1 NIC will apply to the levy.
From April 2023, the increases will be legislated separately as a “health and social care levy” and NIC rates will return to 2021/22 levels.
Alongside the levy, the government has announced a 1.25% increase in dividend tax rates from 1 April 2022, taking rates to: 8.75% for basic rate taxpayers; 33.75% for higher rate taxpayers; and 39.35% for additional rate taxpayers. The £2,000 dividend allowance will remain. The government estimates that 70% of the revenue raised will be paid for by additional and higher rate taxpayers in 2022/23.
The levy will help fund social care in the UK, under which from October 2023, the amount individuals will pay towards personal care throughout their life will be capped at £86,000. Individuals with assets of less than £20,000 will not make any contribution to care costs from savings or the value of their home and those with assets between £20,000 and £100,000 will be eligible for means-tested support.