Impact of the Health and Social Care Levy
On Tuesday, 7 September a 1.25% rise in National Insurance (NIC) was announced.
Here we unpack the impact on your organisation.
What is changing for employees?
Excluding a few exceptions, national insurance for employees is currently (in the 2021/22 tax year) 12% on earnings between £797 and £4,189 a month and 2% on earnings over £4,189 a month.
These rates will increase to 13.25% and 3.25%.
The increase will not apply if you are over the State Pension age, but there are further changes coming from April 2023 which will impact employees over the State Pension age.
What is changing for employers?
Employers also pay national insurance at 13.8%. This is increasing to 15.05%.
What about dividends?
If as a business owner you take money out of the company via dividends then you will also see your tax bill increase by 1.25%.
Tax band | Current Tax rate on dividends over the allowance | New tax rate on dividends over the allowance |
Basic rate | 7.5% | 8.75% |
Higher rate | 32.5% | 33.75% |
Additional rate | 38.1% | 39.35% |
When does this all happen?
The changes come into effect from April 2022. A year later there will be additional changes.
The new Health and Social Care Levy will take effect from 6 April 2023. National Insurance will go back to the previous rates and instead you will see a separate Health and Social Care Levy line on your payslip instead, this will be at 1.25%
Individuals above State Pension age will not be affected by the increase to National Insurance contributions for the 2022 to 2023 tax year but will be liable to pay the levy from April 2023.
What do I need to do?
Your payroll software should be updated to deduct the correct National Insurance amounts from April 2022.
Your payroll provider should be up to date on the changes and be able to support you.
You will want to know how much extra this is going to add to your organisation’s pay bill so that you can plan and budget.
If you need support with your payroll then feel free to reach out to our team here at Contando or read more about our payroll services.
