Funding Health & Social Care plus Budget date: impact for individuals

Health and Social Care Levy

The new HSC Levy will initially be funded through increases in National Insurance rates.

From April 2022 the Government will introduce a temporary increase of 1.25 percent to National Insurance Contributions (NIC) for employers, employees and the self-employed including partners.

The table below assumes the NIC thresholds/profit levels remain at their current levels in 2022/23. This increase will not impact those earning below the NIC Primary/Lower Profits Limit threshold of £9,568.

	Employers Class 1 NIC	Employees Class 1 NIC	Self-employed Class 4 NIC
Current year 2021/22	13.8%	12% (between £9,568 and £50,270 the NIC Upper Earnings Limit) and 2% (above that limit)	9% on profits between £9,568 and £50,270 and 2% payable on profits above £50,270
2022/23	15.05%	13.25% (between £9,568 and £50,270 NIC Upper Earnings Limit) and 3.25% (above that limit)	10.25% on profits between £9,568 and £50,270 and 3.25% payable on profits above £50,270

From April 2023:

• The 1.25 percent HSC Levy will be formally separated from NIC and will also apply to working individuals above state pension age; and
• NIC will return to the 2021-22 rates.

Our current understanding is that the HSC Levy will:

• Apply to the same earnings as Class 1 NIC (employers and employees) and Class 4 NIC (self-employed including partners);
• Be collected via the PAYE system through payroll; and
• Benefit from existing NIC reliefs (e.g. for employees under the age of 21, apprentices under 25, qualifying freeport employees, and the employment allowance).

Dividend rates

From April 2022 rates of dividend tax increase by 1.25 percent.

Dividend rates are based on the level of taxable income and this increase is as follows.

Level of taxable income	Basic rate	Higher rate	Additional rate
Current year 2021/22	7.5%	32.5%	38.1%
Future years from 2022/23	8.75%	33.75%	39.35%

 

Companies will be affected by the increased dividend tax rate, additional 1.25 percent employers’ HSC Levy as well as the increase to corporation tax to 25 percent from April 2023. The impact of these increases on the effective rate of tax i.e. taking account of corporation tax already suffered on taxable profits (but not adjusted for any potential costs of the HSC Levy) is set out in the table below. Privately owned business owners will need to carefully think through and work out the impact of these changes, especially those that typically take dividends as well as salary.

	Basic rate	Higher rate	Additional rate
Current year 2021/22 (19% corporation tax rate)	25.1%	45.3%	49.9%
2022/23 (19% corporation tax rate	26.1%	46.3%	50.9%
2023/24 onwards (25% corporation tax rate, subject to reduced rates down to 19% for small profits)	31.6%	50.3%	54.5%

 

The impact of the new levy for employers is covered in a separate article in today’s Tax Matters Digest.

Autumn Budget and Capital taxes

On the same day, the Chancellor confirmed that the Autumn Budget will be held on Wednesday 27 October 2021.

Although in his speech, announcing ‘Build Back Better our plan for health and social care’, Boris Johnson did say that he would not be raising capital gains tax to pay for social care, this does not rule out the potential for future increases to capital taxes. With a continuing need to raise funds to finance the cost of the pandemic, there is increased pressure on the Chancellor for increases to capital taxes.

Please contact your usual KPMG in the UK contact to help you to understand how such changes could impact you, your family and/or your business.