Health and Social Care Levy

Health and Social Care Levy

To help raise an extra £12bn a year for health and social care following the pandemic all rates of NIC and income tax on dividends will increase by 1.25% from 6/4/2022. This increase in rates will be rebranded as the health and social care levy from April 2023 and de-coupled from its NIC parent at that time, allowing the Government to widen its scope to include working taxpayers who are over state pension age.

The technical annex to the proposal for the health and social care levy says that the NIC rates will revert to their previous levels from April 2023.

Self-employed individuals who are over the state pension age on 6/4/2023 will pay the health and social care levy at 1.25% on profits over £9,568 per year.

Employees currently do not pay primary Class 1 NIC when they reach state pension age but employers do pay secondary Class 1 NIC on the salary of these older workers unless they fall under one of the exemptions for secondary Class 1 for example ex-forces veterans.

Any employees over state pension age will have to pay the health and social care levy at 1.25% on their earnings above £9,568 per year from 6/4/2023.

Classes 2 and 3 NIC
 
These classes of NIC are charged at flat monetary amounts per week and the Government has confirmed that the increase in NIC which will be transformed into the health and social care levy will not apply to these classes.

Dividend tax
 
The rates of income tax on dividends received will increase as shown in the dividend tax table below. Dividends received on investments held within ISAs are not subject to the dividend tax.

              Dividend Tax               2021/2022                       2022/2023

              Dividend allowance           £2,000                            £2,000

              Basic rate band                 7.5%                               8.75%

              Higher rate band              32.5%                             33.75%

              Additional rate band         38.1%                             39.35%

Possible knock-on effect for loans

Where a director or participator in a close company borrows from that company (eg overdrawn director's account) and does not repay the loan by the due date of the corporation tax a s455 charge is levied at 32.5% of the outstanding loan. That charge may also be increased to 33.75% in line with the higher rate of dividend tax from 6/4/2022 but this has not been confirmed.

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