Rise in National Insurance to pay for health and social care announced on Tuesday
On Tuesday the Prime Minister made an announcement breaking a pre-Covid manifesto promise not to raise core taxes. Speaking in the House of Commons on Tuesday, he announced a 1.25% health and Social Care Levy on earned income, with dividend rates increased by the same amount and the Levy was approved in a vote by MP's last night.
This levy was pledged to substantially increase funding ringfenced for health and social care over the next three years and is to be funded by a new tax: the Health and Social Care Levy.
The 1.25% Health and Social Care levy will be a separate tax to Income Tax and National Insurance and means that people starting care from October 2023 would not pay more than £86,000 over their lifetime (not including accommodation) and those with assets of less than £20,000 will not make any contribution.
From April 2022, National Insurance contributions (NIC's) will increase by 1.25% for businesses, employees and the self-employed.
From April 2023, National Insurance will return to its former level and the new legislatively separate Health and Social Care Levy will be introduced, also at 1.25%.
This will be paid by businesses, their employees and the self-employed and will also apply to working pensioners, who cease to pay National Insurance once they reach retirement age.
Those earning less than £9,564 won’t have to pay National Insurance or the new levy.
The latest National Insurance rates and thresholds guidance for employers from 2021 to 2022 has been updated click here
Dividend income tax rates in all income tax bands will also increase by 1.25% from April 2022.
More information will follow once further guidance has been made available. In the meantime business owners will need to consider the financial impact on their business and if you want to talk through the changes or would like further advice please do contact us.