UK Increase To National Insurance
New Health and Social Care Tax
On the 7th of September 2021, Boris Johnson announced that a new health and social care tax will be introduced in the UK to fund reforms to the care sector and NHS funding in England from April 2022.
The tax will start as a 1.25% increase in National Insurance Contributions (NIC’s) paid by employees, the self-employed and by employers and will also apply to income from share dividends.
The new tax will not apply to National Insurance Contributions (NIC’s) paid by the lower paid self-employed workers and to any persons making voluntary NI contributions.
Prime Minister Boris Johnson announced in the Commons, “those with higher incomes will contribute more to the programme and it will be funded by both businesses and individuals”.
What does the Reform Mean?
As of October 2023
- anyone with assets under £20,000 will have their care costs fully covered by the state
- those with assets between £20,000 and £100,000 will be expected to contribute to their costs, however, they will also receive state support
From 2023, the additional payment will become a separate tax on earned income called the Health and Social Care Levy, which will be calculated in the same way as National Insurance and detailed separately on payslips.
The Prime Minister also stated, “there will be a cap of £86,000 on what people will be asked to pay over their lifetime for care”.
“The increase will be used exclusively on health and social care, and will raise £36 billion over the next three years”.
He told MPs, “the changes will increase hospital capacity to 110%, in turn capping COVID backlogs and enabling 9 million more appointments, scans and operations”.
“As a result, while waiting lists will get worse before they get better, the NHS will aim to be treating around 30% more elective patients by 2024-2025 than before COVID,”
What are the Government’s plans and how will they change the Social Care Sector?
The government has committed to investing £36 billion over the next three years to help the NHS recover from the pandemic.
As well as investing in reforming the social care sector.
They have made a promise that as of October 20, no one will be forced to pay more than £86,000 over their lifetime for their social care, regardless of their income and assets.
For those with assets under £20,000, the government will fully cover the cost of care.
For those with assets between £20,000 and £100,000, the government will contribute towards the cost.
The Prime Minister said that he accepts that the measure being taken breaks a Tory manifesto pledge not to increase National Insurance, however, it was a necessary change due to the countries financial pressures from the coronavirus pandemic.
He told MP’s in the commons, “No Conservative government wants to raise taxes, I will be honest, I accept this breaks a manifesto commitment. It is not something I do lightly but a global pandemic wasn’t in anyone’s manifesto,”
“This is the right the reasonable and the fair approach. I think the people of this country understand that in their bones and they can see the enormous steps that this government and the Treasury have taken.”
According to the official spokesperson for the PM, the change will make “the system fairer for all” and noted that working adults above pension age will also contribute to the new levy.
“The levy will be paid by working adults including those over the state pension age. From April 2022, while systems are being updated, NICs rates will rise by 1.25%”.
“Then, from April 2023, once systems are updated, the levy will be separated and the exact additional amount each employee is paying through the levy will be visible as a separate line on an individual’s payslip.
“It is at this point that working adults above pension age will contribute to the levy.
“Individuals will contribute according to their means and those who earn more will pay more.
There has been opposition to the new reform and the subsequent National Insurance Increase and some have suggested income tax should be raised instead, however, the PM responded to this by clarifying that this would not generate the same amount and the amount needed for the changes to happen successfully.
The Prime Minister told the Commons, “Income tax is not paid by businesses, so the whole burden would fall on individuals, roughly doubling the amount that the basic taxpayer could expect to pay and the total revenue from capital gains tax amounts to less than £9 billion this year”.
“Instead, our new levy will share the cost between individuals and businesses, and everyone will contribute according to their means, including those above their pension age.”
The PM also stated that there will be a 1.25% increase in the amount of tax paid on income from share dividends to contribute towards the costs of the social care package.
As of 2023, it will become a separate tax on earned income, and in addition to this, it will also apply to anyone working above State Pension age, at which point National Insurance rates will return to their 2021/22 levels.
The Government’s focus is based on funding health and social care reforms in England, however, there will be an additional £2.2 billion for Scotland, Wales and Northern Ireland to spend on services, with £400 million allocated for Northern Ireland.
National Insurance Increase FAQ’s
National Insurance: What is it?
Whether you work as an employee, or you are self-employed National Insurance (NI) is paid from the age of 16 until you reach State Pension age as long as:
- You are employed and earn over £184 per week
- You make a profit of £6,515 or more a year being Self Employed
What are the current National Insurance Rates?
Employed
Paid at a rate of 12% earning between £184 and £967 per week
Paid at a rate of 2% earning over £967 a week.
Self-employed
Contributions depend on your annual profits
What are the changes and why are they happening?
As part of its commitment to boost the NHS’s recovery from the Coronavirus pandemic and to reform the adult social care system, the Government will invest £36 billion over the next three years.
As of October 2023, no one will pay more than £86,000 for their social care, regardless of their assets.
If you have an asset below £20,000, the government will fully cover the cost of your care, and if you have an asset between £20,000 and £100,000, the government will contribute to the cost of your care.
Why is the reform happening?
Despite a recovery from the Coronavirus epidemic, there is a record-high number of NHS patients waiting for treatment.
It has been evident for years that the social care sector has needed significant reform and the recent COVID crisis has made matters even worse.
How will the changes happen?
The UK will introduce a health and social care levy in April 2022 by an increase to all adults National Insurance contributions.
National Insurance rates will increase by 1.25% between 2022 and 2023. Payslips for each individual will display the levy separately as of April 2023. Working adults over pension age will then contribute at this point.
Additionally, the Government is raising the dividend tax rate by 1.25% to ensure that people who receive dividend income make the same contribution.
How much will I have to pay?
The tax is dependent on how much you earn and it is a progressive system, meaning those who earn more will pay more.
| Annual Salary | NI Paid Now | Annual NI Increase | Total NI Payment Due Apr 2022 |
| £20,000.00 | £1,252.00 | £130.00 | £1,382.00 |
| £30,000.00 | £2,452.00 | £255.00 | £2,707.00 |
| £40,000.00 | £3,652.00 | £380.00 | £4,032.00 |
| £50,000.00 | £4,852.00 | £505.00 | £5,537.00 |
| £60,000.00 | £5,079.00 | £630.00 | £5,709.00 |
| £100,000.00 | £5,879.00 | £1,130.00 | £7,009.00 |
Will there be some people who won’t pay additional NI?
As a result of the progressive nature of the levy, 6.2 million people earning less than a threshold of £9,568 in 2021-22 will not be required to pay the levy.
What are the financial pressures on households?
Many more people throughout the pandemic have suffered pay cuts, salary freezes and job losses, and already that has increased the financial pressures for many households across the UK.
Households are also experiencing increases in living costs, with the Consumer Price Index (CPI) measure of inflation rising by 2% annually in July.
The cash savings rate has been at an all-time low.
Halifax reports that the average UK house price hit a record high of £262,954 in August, further pressurising people’s finances and ability to cope without support.
How will the NHS benefit from the reform?
A further nine million check-ups, scans, and operations are expected to be funded, as well as planned improved innovation by the NHS.
How will social care benefit from the reform?
Between 2022-23 and 2024-25, social care will receive £5.3 billion and less than half of this will fund the minimum cap.
Meaning that around £500 million will contribute towards staff training and skills as well as money towards increasing local authority payment rates, integration and quality.
When will social care benefit?
In the next financial year, some of the additional funds will go to social care and again after the three-year window more funds will be allocated to the sector when the cap is hit.
How will the increase to NI impact childcare vouchers?
Children’s childcare vouchers are based on salary sacrifice. As a parent, you can ‘sacrifice’ a portion of your pay both pre-Tax and National Insurance as Childcare Vouchers. As a result of the scheme, you save on the Tax and National Insurance that you would have otherwise had to pay.
Currently, a basic rate taxpayer that salary sacrifices £243 per month make an annual saving of £933. From April 2022, this will increase to £970.
What does it mean for my business?
The Levy will apply in the same way as Class 1 (Employee, Employer) and Class 4 (Self-Employed, including partners) National Insurance, and to the main and higher rates.
Many small businesses are protected. 70% of the money raised from businesses will come from the largest one per cent of businesses, while 40% of all businesses will pay nothing extra.
Hayvenhurst Accountancy Services can help you with any questions you have around the new health and social care tax and how it will impact your business or personal finances now and in the future.
We have experienced accountants in all types of industries and sizes who fully understand all of the financial implications and will advise you accordingly.
Contact us today to find out more and to book your appointment with us.