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The Health and Social Care Tax

Chris Stedman
Senior Partner
September 20, 2021
    
5 min read

The Health and Social Care tax... or the National Insurance and Dividend Tax hike?

The government needs extra cash to fund investment in health and social care in the UK and has decided on the introduction of a Health & Social Care Levy.

We are also assured that the levy will be ring fenced and used solely for costs of providing health and social care.

Who is going to pay the levy?

In a word - the UK worker and his (or her) employer.

The increase will apply to:

Class 1 Employees / Employers
Class 1A/1B Employers on certain benefits provided to employees
Class 4 Self-Employed and Partners


The rates for classes 2/3 NIC will remain unchanged.

So what will the rates be?

  2021/22 2022/23
Class 1    
£797 - £4,189 a month 12.00% 13.25%
Over £4,189 a month 2.00% 3.25%
     
Class 1A/1B 13.80% 15.05%
     
Class 4    
£9,569 - £50,270 9.00% 10.25%
Over £50,270 2.00% 3.25%


Is that all?

No, there are a couple of extras: 

  1. From April 2022 the tax on dividend income is set to rise and the next Finance Bill will include these proposals.  The existing and new rates will be:

      2021/22 2022/23
         
    Dividend nil rate £2,000 £2,000
         
    Basic Rate 7.50% 8.75%
    Higher Rate 32.50% 33.75%
    Additional Rate 38.10% 39.35%

    This will effectively stop directors and others re-routing to dividends to avoid the extra NIC charges on remuneration and salaries.

    Note that dividends from shares held in ISAs will continue to be free of dividend tax.

  2. From April 2023 the levy will apply to those employees and self-employed over pension age and still working. It is assumed that these charges will not apply to income below the lower earnings limit and primary threshold.


In the overall…

This is a tax which overwhelmingly will be borne by workers with very little coming from pensioners. It continues a trend seen over many decades of the burden of tax being shifted towards earnings.  

On the positive side the government plans to introduce an £86,000 cap on the amount anyone in England will need to spend on their personal care over their lifetime. Further, from October 2023 anyone with assets of less than £20,000 will not have to make any contribution for their care from their savings or the value of their home. Anyone with assets of between £20,000 and £100,000 will be eligible for some means-tested support. People whose assets are over £100,000 must pay full fees.

Perhaps this is one small step in the right direction?

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