Helping your clients with the new health and social care levy
The government has announced an extra tax to raise funds for health and social care across the UK as the NHS recovers from COVID-19. The 1.25% increase in NICs applies to employers as well as employees from April 2022 onwards. The Prime Minister also announced an equivalent increase to dividend tax to help cover the costs of the social care package which is expected to raise £36 billion over the next three years.
A recent survey conducted by ADP revealed that 82% of companies have found the COVID-19 pandemic challenging, particularly when it comes to accessibility and reliability of payroll systems, and delivering accurate, timely staff pay. So, we have had COVID-19, Brexit and now tax rises. Small businesses keep getting setbacks on reducing margins and increasing costs which could discourage the creation of new jobs and potentially put some more at risk down the line.
An accountant's advice is to plan for the increase. This will be very difficult for employers, so careful re-budgeting is a must for these additional employer’s National Insurance costs. As the tax increase is unavoidable, the only option is to plan budgets for the increase. It’s important to note that existing reliefs on NICs, including the employment allowance, will also apply to the levy.
Accountants could advise their clients to look at share option schemes rather than bonuses for their higher earner employees. Also, salary sacrifice could become an even more efficient way of making pension contributions as it would reduce the salary on which employer and employee NICs are paid. This could provide businesses and individuals with tax savings.
This tax increase will affect absolutely every taxpayer as those who pay NI are those who earn salaries. The Health and Social Care Levy will be effectively introduced from April 2022. From 2023 it will then “be formally separated out” under new legislation and therefore, will be required to be included as a separate deduction on payslips. BrightPay payroll software will be updated in accordance with legislation to apply the new rates to employers and employees.
View further information on how payroll will be impacted by the new national insurance levy or view the government’s official document here.