1.25% Health and Social Care tax

Yesterday Prime Minister Boris Johnson announced a new 1.25% health and social care tax which from April 2022 will take the form of a 1.25 percentage point rise in national insurance for employees and employers, and a 1.25% tax rate increase for income from share dividends.

From 2023 national insurance will then return to previous levels and a separate tax, known as the ‘Health and Social Care Levy’ will be introduced. This will continue as a 1.25% tax calculated in the same way as national insurance however it will now also apply to dividend income meaning owner managers who currently remunerate themselves by way of dividend will need to budget for this additional amount.

With roughly six months before the planned increase is implemented we advise all business owners to plan ahead. Following a difficult 18 months for the majority of SMEs, the new tax will be seen by many as a further blow, making the cost of employing staff more expensive. For example for businesses employing just one member of staff who earns £25,000 a year, the employer national insurance contribution will rise by £202*. For larger employers, multiplying this amount across the work force, it could become a substantial figure.

The employment allowance (currently £4,000) can still be claimed by eligible employers and the allowance will extend  to cover the additional levy. Small employers (those with Employers NI bills currently lower than around £3,650) will therefore not see any impact.

There may be adjustments you can make to your payroll to prepare for the upcoming changes. For instance, offering a salary sacrifice scheme for pension contributions, or considering offering tax efficient benefits in kind such as the cycle scheme or electric company cars, both of which would reduce the amount paid by both employee and employer in national insurance. As ever, it is important to seek professional advice before making any decisions.

The most imperative thing for any business owner is you assess, and understand, your current position before you can see how this rise will affect you going forward. Talk to your current Wenn Townsend contact, or email me to find out more.

Andrew Kilby, Director of Client Services


* 1.25% x (£25,000 – £8,840)

Source: Wed, 08 Sep 2021 17:06:43 +0100