ICAEW's Tax Faculty's provides a summary of the announcements in the Autumn Budget 2021 on the new health and social care levy.
Increases to tax to fund health and social care were announced by the Prime Minister on 7 September 2021. This includes a temporary one-year increase in national insurance contributions (NIC) from 6 April 2022 before a new health and social care levy is introduced from 6 April 2023. Dividend tax rates will also increase from 6 April 2022.
Temporary NIC increase
From 6 April 2022, there will be a temporary 1.25% increase in class 1 (employee) and class 4 (self-employed) 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 (include deemed employees) and self-employed individuals and partners earning above the class 1 primary threshold / class 4 lower profits limit (£9,880 in 2022/23 ). Employers will pay the additional 1.25% for employees earning above the class 1 secondary threshold (£9,100 in 2022/23 ).
Existing reliefs and allowances from employer’s secondary class 1 NIC will apply to the levy including the £4,000 employment allowance, reliefs for employers of apprentices, newly employed veterans and new employees in freeports.
The additional 1.25% NIC for working age employees, self-employed people and employers will be added to the existing NHS allocation.
A new tax from April 2023
From 6 April 2023, the increases become the “health and social care levy” (HSCL) and NIC rates will return to 2021/22 levels.
The levy is hypothecated in law, meaning that the revenues will be ringfenced for health and social care across all parts of the UK.
The HSCL will apply to earnings liable to Classes 1, 1A, 1B and 4 NIC, including in respect of individuals over state pension age in employment or self-employment who are currently exempt from paying NIC.
Employment allowance will be able to be offset against HSCL as well as NIC.
Find out more:
- "PM confirms 1.25% increase to NIC and dividend tax rates" (7 September 2021, Tax News)
- Health and Social Care Levy Act 2021 (legislation.gov.uk)
Increase in dividend tax rates
The increase to dividend tax rates also affects personal representatives, companies with loans to participators, and trustees
Dividend tax rates increase by 1.25% from 6 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 increase in dividend tax rates will be legislated for in the next Finance Bill.
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.
The Tax Faculty reflected on the Chancellor's announcements in this essential webinar. Freely available, watch the recording to find out what the Autumn Budget 2021 could mean for you and your clients.
More on Autumn Budget 2021
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