Update, 22 September 2022: Chancellor Kwasi Kwarteng announced today that the Health and Social Care Levy will be cancelled. The Chancellor confirmed that funding for health and social care services will be protected and will remain at the same level as if the Levy were in place.
Therefore the information below no longer applies, but is here as a record.
The Prime Minister has announced the Government’s Plan for Health and Social Care. To fund investment in the NHS, there will be a new Health and Social Care Levy.
This will begin as a 1.25% increase in National Insurance Contributions (NICs) and tax on share dividends from April 2022. It will then become a separate tax on earned income from April 2023.
For entrepreneurs and business owners, this means a triple hit from next April. They will be paying the 1.25% NIC increase on their own salary; the employer contribution is increased; they will also pay an additional 1.25% on dividends extracted from profits of the business.
For pensioners: in 2022/23 the levy will be an increase in NIC, plus an increase in the dividend tax rates, meaning that pensioners will pay it on dividends but not on earnings. When the NIC element changes to a free-standing Health and Social Care Levy from 2023/24, pensioners will pay it.
Whilst the 1.25% NIC increase was somewhat expected given recent press coverage, the additional tax on dividend income is a surprise.
Both increases break the Conservative Party’s 2019 manifesto pledge not to raise National Insurance, but of course that manifesto was pre-pandemic.
The increases will affect most employed and self-employed individuals, but it is interesting to see the Government also targeting entrepreneurs who usually extract income from their company by way of dividends.
We regard the Health and Social Care Levy as the start of the ‘post-COVID payback’ and possibly the first of a number of changes to our UK tax system. The Chancellor’s Spending Review and Autumn Budget on 27 October will tell us more.
Our coronavirus hub has information on the Government’s full range of COVID-19 support schemes, including the Coronavirus Job Retention Scheme, Self-Employment Income Support Scheme (both due to end on 30 September) and Recovery Loan Scheme. We are also pleased to help you with any specific guidance: please get in touch with your usual BKL contact or use our enquiry form.