What is the Health and Social Care Levy?
The Health and Social Care Levy has been introduced as an extra tax to fund health and social care and to help the NHS recover from the COVID-19 Pandemic. HMRC have now published new and detailed guidance on the additional tax.
Ultimately, the Health and Social Care Levy means that your National Insurance contributions might increase when it comes into effect on 6th April 2022. The increase in contributions will affect you if you are:
- an employer
- self-employed
- an employee
- self-employed or an employee and above State Pension age from April 2023
However, you will not be affected by these changes if you’re above State Pension age and are not an employee or self-employed.
How will employees and employers be affected?
For the tax year 6th April 2022 to 5th April 2023, Employer Class 1, Employee Class 1, Class 1A, Class 1B and Class 4 National Insurance contributions will increase, for one year, by 1.25%. However, from 6th April 2023, the National Insurance contribution rates will go back down to 2021 to 2022 levels, and the Levy will become a separate new tax of 1.25%.
If you are an employer, employee or self-employed (and below the State Pension age), you will pay the 1.25% increase in National Insurance contributions.
From 6th April 2023, the separate levy of 1.25% will apply to the same amounts for the following classes of National Insurance contributions:
- Class 1 that are above the primary and secondary thresholds
- Class 1A and Class 1B for employers
- Class 4 for the self-employed
All existing National Insurance contribution reliefs will apply to the separate levy for:
- Employees under the age of 21
- Apprentices under the age of 25
- Qualifying Freeport employees
- Those eligible for the Employment Allowance
- Armed forces veterans
HMRC will collect the levy through existing PAYE payroll and self-assessment systems.
If you are an employer and your business pays Class 1, Class 1A or Class 1B National Insurance contributions, you’ll need to start paying the 1.25% increase in contributions from 6th April 2022. You’ll then need to pay the separate 1.25% levy from 6th April 2023.
You may also have to pay the separate levy from 6th April 2023 for employees who are over State Pension age.
Those liable to pay National Insurance contributions will also be liable to pay the Levy. Existing employer reliefs and allowances that apply to National Insurance contributions will also apply to the Levy.
Earnings on which National Insurance contributions are calculated will also be used to calculate the separate Levy.
Information will be available later this year on how to report the Levy from April 2023.
However, you will not be expected to pay the additional tax if the following applies to your employee/s:
- apprentices under the age of 25
- employees under the age of 21
- armed forces veterans
- employees in Freeports
Furthermore, HMRC is asking that employers include the following message on payslips to represent the new Levy:
‘1.25% uplift in NICs, funds NHS, health & social care’
From April 2023, you will need to report the Levy as a new item through Real Time Information (RTI). It will need to be shown on payslips as a separate 1.25% levy for employees who are obligated pay it.
How will the self-employed be impacted?
If you are self-employed, gov.uk have published the following handy table to find out what additional taxes you will be paying, if any:
Self-employed type | Do I pay the additional 1.25% National Insurance contribution for tax year 6 April 2022 to 5 April 2023? | Do I pay the separate 1.25% levy from 6 April 2023? |
---|---|---|
I have profits more than the Lower Profits Limit for Class 4 National Insurance contributions | Yes | Yes |
I pay Class 2 National Insurance contributions only | No — the levy does not apply to Class 2 National Insurance contributions | No — the levy does not apply to Class 2 National Insurance contributions |
I’m above the State Pension age before 6 April 2022 with profits more than the Lower Profits Limit | No — because you do not pay National Insurance contributions | Yes — you must pay this using Self Assessment |
I reach State Pension age in the tax year 6 April 2022 to 5 April 2023 with profits more than the Lower Profit Limit | Yes — because you’ll continue paying Class 4 contributions until the end of the tax year in which you reach State Pension age | Yes |
You’ll pay the Health and Social Care Levy as you would other taxes, using Self Assessment.
You should pay the first deduction of this tax year on your 2023 to 2024 tax return, in January 2025.
As always, if you would like any further information regarding the above, please feel free to contact our offices by email info@williamsoncroft.co.uk.