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What the Health and Social Care Levy means for businesses

The new Health and Social Care Levy made a lot of headlines when it was announced by the government in September 2021. The government expects to raise an additional £12 billion a year from the scheme which will fund the NHS and social care reform.

What is the Health and Social Care Levy?

From April 2022 the levy will initially be collected by a 1.25% increase in National Insurance rates, paid by both employers and workers, including Class 1, Class 1A, Class 1B and Class 4, as well as a 1.25% increase to the Dividend Tax Rates. From April 2023 National Insurance will return to its current rate and the extra tax will be collected as a new Health and Social Care Levy which will still be paid by both employers and workers.

How will the Health and Social Care Levy impact on employers?

A significant element of the levy will be borne by businesses as a result of the increase in Class 1 Employers National Insurance, and business owners should prepare for this.

We have illustrated below how the levy will reduce the amount of income in individuals’ pockets and how much more it will cost employers to employ an individual per salary:

So, with this increase in cost of employment for all businesses, what could it mean for businesses in the future? Many industries across the UK have had significant struggles throughout the pandemic, with many experiencing forced closures due to the lockdown rules. As these businesses start to reopen and recover, they will need to factor in this additional expenditure to ensure their business stays buoyant and that they can compete for the right calibre of workers.

New information for payslips

HMRC is asking employers, where appropriate, to include the following message on payslips:

‘1.25% uplift in NICs, funds NHS, health & social care’.

If your employees’ payslips are delivered to them via our epayslip portal, the message will appear on their epayslip from April 2022.

This message is for the payslips of employees who have to pay the increased contribution between 6 April 2022 and 5 April 2023. This is so that they understand what it’s helping to fund. From April 2023, you’ll need to report the levy as a new item through your payroll. You will need to show it on payslips as a separate 1.25% levy for employees who have to pay it.

Are there ways to lessen the impact of the Health and Social Care Levy?

There are opportunities for businesses to lessen the impact of the levy, such as bringing forward planned dividends to the current tax year or offering employees salary sacrifice or share option schemes.

Thoughts on the Health and Social Care Levy

Protecting the NHS and ensuring social care is available to everyone that needs it is incredibly important, but the ‘one size fits all’ nature of the levy being introduced at such a critical stage of the UK’s economic recovery - and especially when the cost of living is rising - could have a much greater impact on struggling and recovering businesses than was anticipated.

For help and advice on how to prepare for the Health and Social Care Levy or any other tax issue, please contact Phil Hartley to the right of this page.

Written February 2022.

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