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Extra tax raised to pay for health and care services
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Health and social care levy: What we know

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Rebecca Cave pins down what we know so far about the 1.25% health and social care levy, which may be branded in future as the “care tax” to make it more palatable to voters.

10th Sep 2021
Tax Writer Taxwriter Ltd
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To help raise an extra £12bn a year for health and social care following the pandemic, all rates of national insurance contributions and income tax on dividends will increase by 1.25 percentage points from 6 April 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 the NIC rates will revert to their previous levels from April 2023, but the monetary effect for each taxpayer will be the same. Only the names of the taxes are changed.  

Older workers

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

Employees currently don’t 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 such as for ex-forces veterans.

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

Class 1 NIC

Class 1 Primary (employee) 2021/22 2022/23
0–£9,568 0% 0%
£9,568–£50,270 12% 13.25%
Above £50,270 2% 3.25%
Class 1 secondary (employer)    
0–£8,840 0% 0%
Above £8,840 13.8% 15.05%
Class 1A 13.8% 15.05%
Class 1B 13.8% 15.05%
The upper earning limit of £50,570 is aligned with the income tax higher rate threshold, both of which will be frozen at that level until 6 April 2026, as announced in the Budget on 3 March 2021.

We don’t know whether the primary threshold (£9,568) and the secondary threshold (£8,840) will also be held at those levels for that period.

A person on the minimum wage of £8.91 per hour starts to pay class 1 NIC if they work more than 17.4 hours per week and pays income tax if they work more than 21.13 hours per week.  

Class 4 NIC

  2021/22 2022/23
0–£9,568 0% 0%
£9,568–£50,270 9% 10.25%
Above £50,270 2% 3.25%

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 tax, will not apply to these classes of NIC. Thus, the care tax will not apply to those taxpayers who are only paying class 2 or class 3 NIC. 

Example 1

George is a partner in the Gershwin Law partnership, taking a profit share of £150,000 per year. The class 4 NIC payable on George’s income from the partnership will be:  

2021/22 Rate Payable
Class 4 NIC   £
£9,568–£50,270 9% 3,663.18
£50,270–£150,000 2% 1,994.60
Total class 4 NIC   5,657.78
 
2022/23 Rate Payable
Class 4 NIC   £
£9,568–£50,270 10.25% 4,171.96
£50,270–£150,000 3.25% 3,241.23
Total class 4   7,413.19
 

The class 4 NIC due on George’s profit share has increased by £1,755.41 in 2022/23. That’s an increase of nearly 31%.

The 2022/23 tax year is also the transition period between the current year basis and the proposed tax year basis due to apply from 6 April 2023. The 33% of partnerships that do not already draw up accounts to 31 March or 5 April will have more than 12 months of profits taxed in 2022/23, leading to bumper tax and class 4 NIC bills in that year.

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   2021/22 2022/23
Basic rate band 7.5% 8.75%
Dividend allowance £2,000 £2,000
Higher rate band 32.5% 33.75%
Dividend allowance £2,000 £2,000
Additional rate band 38.1% 39.35%
Dividend allowance £2,000 £2,000
We don’t know whether the dividend allowance will remain at the same level or be cut in 2022/23.

Example 2

Fred is the director and sole shareholder of Flintstone Ltd, and is the only employee. He takes a salary of £12,570, and dividends of £37,700. Any remaining profits are either left in the company or paid as an employer’s contribution into his pension fund.

The income tax and NIC payable on Fred’s income from the company will be:  

2021/22 Rate Payable
Class 1 NIC–employee   £
£9,568–£12,570 12%     360.24
Class 1 NIC – employer     
£8,840–£12,570 13.8%     514.74
Dividend tax    
£2,000–37,700 7.5%  2,677.50
Total tax and NIC   3,552.48
 
2022/23 Rate Payable
Class 1 NIC – employee   £
£9,568–£12,570 13.25%     397.76
Class 1 NIC – employer     
£8,840–£12,570 15.05%     561.37
Dividend tax    
£2,000–£37,700 8.75%  3,123.75
Total tax and NIC   4,082.88

The income tax and class 1 NIC due on Fred’s income has increased by £530.40 in 2022/23. That’s an increase of nearly 15%, which Fred will surely notice.

The employer’s class 1 is tax deductible for Flintstone Ltd, but Fred also needs to budget for an increase in corporation tax from 1 April 2023, when the main rate jumps from 19% to 25% of profits over £50,000, subject to tapering up to £250,000.

Possible knock-on effect for loans

Where a director/participator in a close company borrows from that company (eg overdrawn director’s account) and doesn’t repay the loan by the due date of the corporation tax, a section 455 charge is levied at 32.5% of the outstanding loan.

That section 455 charge may also be increased to 33.75% in line with the higher rate of dividend tax from 6 April 2022, but this has not been confirmed. 

Replies (27)

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By CJaneH
10th Sep 2021 16:40

So individuals with generous pensions who retire early or at retirement age will not pay the NI levy. Individual with little or no pensions who work past their retirement age to supplement their pension or enable them to postpone their pension and get more when they retire will pay the NI levy. Very fair!

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Replying to CJaneH:
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By memyself-eye
10th Sep 2021 17:30

Ain't that just right.
I've already calculated that I (above retirement age and in receipt of pension income) can invoice my self employed wife (below retirement age) up to £9,000 odd for "consultancy services" with no 'levy' consequences for me but a reduction in the levy for her.
Not that I would be that devious of course....

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Replying to CJaneH:
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By Ian McTernan CTA
13th Sep 2021 13:57

Those same individuals have probably already paid much more tax and NI than the ones who have failed to plan or who have earned much less.
No tax is 'fair', as those who earn more end up paying way more and at higher rates than those on lower incomes.....

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Ivor Windybottom
By Ivor Windybottom
10th Sep 2021 16:46

Thanks Rebecca, any chance of reviewing the last para to update s419 to s455?

I thought I'd seen elsewhere (can't find it now, of course!) that this charge was being similarly increased by 1.5%.

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Replying to Ivor Windybottom:
rebecca cave
By Rebecca Cave
11th Sep 2021 11:49

Thanks for spotting my typo! I've corrected that.

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Replying to Ivor Windybottom:
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By Ian McTernan CTA
13th Sep 2021 13:58

I have to admit I still refer to it as s419 as well...too many years under the belt!

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Ivor Windybottom
By Ivor Windybottom
10th Sep 2021 16:47

{duplicate - whoops - new mouse!}

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By Open all hours
10th Sep 2021 17:58

Can’t wait for the cat fight when they have to defund the NHS to focus on social care.

Also, strange they didn’t mention these 42 new chief execs on average £223K apiece.

What was it The Prime Minister said? ‘**** business’. Probably the only time he wasn’t lying?

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Replying to Open all hours:
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By Ian McTernan CTA
13th Sep 2021 14:00

May as well complain about the union bosses on £150k++++ packages or the civil servants on over 150k or the council people on 200k+ or the chancellors of universities on 3-500k+....
One thing public servants have never been bad at is spending our money.

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By GHarr497688
10th Sep 2021 19:11

Still not sure why all this money will fix a back log in operation or get better staff in to are for elderly people needing care. Maybe better management of NI would have been a better start. More staff and better pay don't alone guarantee a better or faster service.

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By Paul Crowley
10th Sep 2021 20:45

Much appreciated
As complete as possible
Had already guessed that S455 was likely to increase

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By VATs-enough
11th Sep 2021 01:27

I am by no means an elitist, nor wealthy. I am modestly comfortable as my wife and I have worked hard over the years, but still have a number of years to go before retirement.

We have been caring for an elderly parent with significant mobility issues and onset dementia, for about 8 years now and she lives with us. During that time we have asked for very little finanical assistance from anyone (constantly being told we don't qualify as we are not destitute), instead paying for private carers using the allowance/benefit she is entitled to and from our own resources.

To now be told that there is a care crisis, and I must cough up £1k a year to help fix this crisis is a real kick in the teeth. That's just taking £1k off me that I would be directly spending to help someone that needs care.

We could have dumped her on the doorstep of the NHS several years ago, and said "your problem now". Of course we would never have done that. But by not doing it, we have likely saved the NHS / local authority several hundred thousand pounds in residential care costs and nursing care.

And now they want to tax my salary because I haven't given enough ?!?! Absolutely livid.

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Replying to VATs-enough:
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By Ian McTernan CTA
13th Sep 2021 14:07

The money has to come from somewhere. I'm pretty sure you won't really notice the difference in your dual income household.

If you had tried 'dumping ' her on the council you would quickly find that you would probably have ended up paying for all that care...

This is, of course, the age old problem of the trend towards not caring for the older generation- it's not so long ago that families shared a house and the young were expected to look after the old (as the parents did for their children), but now the younger generation just want to foist the old into the care system hence why it's become so large.

So yes, everyone will be asked to contribute more, including you.

I've saved the NHS many thousands over the years paying for my wife to go private rather than wait 6months to 2 years to be seen on the NHS (and no, we're not rich or even well off), and yet I still have to pay full rate...

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Replying to Ian McTernan CTA:
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By VATs-enough
13th Sep 2021 22:02

Ian

Not sure if you are trying to have a dig at me or not. If not, my apologies. But if so, I just need to clarify a couple of points:

- the M-I-L has lived with us in our house for over 8 years
- we had to pay to convert part of our downstairs to form a bedroom and downstairs wetroom
- due to circumstance, she has/had no assets and had we 'dumped' her with the NHS/LA there would have been no money for them to take
- at a somewhat conservative cost of £750 per week for a nursing care home, I make that £312k over 8 years - shall I ask for a tax rebate? Shall I invoice the NHS for doing what I did? Of course not...I do not begrudge that one bit. But when a politican jumps up and says we must do more to fix the social care system, they can Foxtrot_Oscar, because I do much MORE than my share already
- completely share your point about the young not wanting to look after the old, clearly not the case in this instance though

The point I was trying to make was that this measure is unwieldy, does not take individual circumstances into account, and presumes that no one does anything to help the elderly I.e. we are all tarnished as feckless. And there are many, many more people out there in my boat.

You mention paying for private health care due to waiting times on the NHS. Been there, got the t-shirt. But this new social care tax is the equivalent of saying to you, thanks for going private, you saved us a few bob there, well done. Now here's an extra tax bill for trying to help us out, we are calling it the private health tax, and everyone's got to pay it regardless of whether they have used private health care or not. "It aint right...it ain't proper..."

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By Mature Student
13th Sep 2021 10:10

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

I see that it is said to apply only to those working beyond SPA, but could 'all of their earnings' include the State Pension? This is taxable and to date hasn't been subject to NIC due to the recipient being over SPA. And if so, will the Employer threshold be maintained at least above max State Pension so it's not levied on HMG?

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Replying to Mature Student:
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By memyself-eye
13th Sep 2021 11:08

No - the state pension is not 'earnings'

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By Michael C Feltham
13th Sep 2021 11:03

As always with damned politicians, this whole concept is simply BS.

The tax revenue raised will not even cover the NHS shortfall: let alone the cost of "Social Care", whatever that is meant to cover.

From my own experience of elderly relatives and supposed "Care Home" costs, they are simply in majority, a rip-off, with the elderly and infirm being fed on such delightful delicacies as jam sandwiches and drugs to keep 'em quiet!

The owners of these facilities are always whining about costs when Government dare to raise minimum wage, but all seem to drive around in top dollar Mercs and Beemas...

Recent experience over my sister-in-law's late Mum, is a case in point; when the dear lady passed away, having spent a huge amount of money on fees, and my sister-in-law wanted to collect her possessions, the "Care" home simply dumped them in a black bin bag, outside the front door.

Many people past retirement age are still working, in order to afford to survive: and it is this segment of society who will be hit hardest by this political charade. However, unlike the Bozo, I am a Benign Capitalist who believes in fair do's; not dumping the greatest fiscal burdens on those least able to shoulder them.

As I have stated, before, since the country is effectively skint, thanks to the crazy excessive borrowing by Sunak and those before him, it is high time Government re-introduced Super Tax as happened after WWII.

One wonders how the Beckhams avoided sufficient taxes to buy this?

https://www.hellomagazine.com/homes/gallery/20210702116656/victoria-davi...

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By Charlie Carne
13th Sep 2021 11:39

If they insist that this is to be treated as a new tax (or 'levy'), then I hope, for the sake of simplicity, that the legislation clearly states that this new levy imposes the 1.25% charge on "income and thresholds subject to NI" (under classes 1 and 4) at the primary and secondary thresholds for employees and employers, respectively, as that will automatically link all of the NI thresholds to those of the new levy every year. If, on the other hand, they simply copy the current numeric thresholds over into the legislation for the start of the new levy (with only the intention to increase them in line with those of NI), then I suspect that, over time, those thresholds will diverge and our calculations will become ever more complicated, and marginal rates will be almost impossible to calculate without a computer. It's bad enough that, after merging the primary and secondary NI thresholds in 2017/18 (making calculations very much easier), they de-merged them again in 2020/21. If this happens with the new levy, too, the level of complication will be enormous.

I can see the political difficulties in merging tax and NI but, if the primary and secondary NI thresholds (and that of the new levy) were all legislated to be at the level of the personal allowance, calculations would be enormously simplified, and the fact that the tax, NI & levy deductions were split out into three headings on a payslip would only be of cosmetic complication for the software developers.

While wishing for the impossible, I'd go further and ask the Chancellor that, instead of changing both the NI thresholds and the personal allowance by a small amount each year, he should only increase the NI threshold until such time as it was in line with the personal allowance and then increase them both by the same amount each year. The de-merger of primary and secondary thresholds in 2020/21 makes this a little harder but it should be an aspiration for so long as complete merger of tax and NI is not politically possible.

As a further suggestion to the Chancellor, he could raise more money from larger employers and simplify the NI calculations by removing the secondary threshold completely (so that employer's NI would be at 13.8% on ALL income) and compensating for that with an increase in the employment allowance. A further simplification (and removal of an anomaly that ignores the point of the EA which was to encourage employment of more staff) would be to only allow the EA to offset er's NI on non-directors' salaries, rather than the current silly rules that allow a director's NI to be offset if the company employs one other employee for at least one week in the tax year, paid just above the LEL (or just above the primary threshold, depending upon one's interpretation of the badly drafted legislation).

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Replying to charliecarne:
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By bendybod
14th Sep 2021 09:58

It is only being linked to NI for one year, isn't it, so that HMRC have time to update their computer systems for a new "tax". So you will just get used to it by the end of next year and it will change again.

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By whopkinscom
13th Sep 2021 13:27

And no mention of those of us hit by Inside-IR35 determinations who now have to fund 2.5% whilst the "pseudo-employers" get away with still not paying their dues!

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By bluebaron
13th Sep 2021 13:40

The more I think about this, and read about it, the more I feel that sadly the government is going to end up pleasing no one:
A lot of people aren't going to be happy with the 1.25% they will have to pay (whatever it is labelled).
Businesses will be clobbered by this and the corporation tax increase -together very anti-business for a Tory government.
Most of the initial money is going to be swallowed up the NHS, not funding social care.
Few people who receive care are likely to benefit. With board & meals etc. not counting towards the cap, an 'inmate' will be spending in the region of £150,000 before the care cap kicks in, so the family home will probably still need to be sold.
Complexity for accountants & payroll providers..?

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By petestar1969
13th Sep 2021 13:58

Here's an idea.....instead of bringing in new taxes disguised as "levies" juts collect what is due under taxes that are already enacted... No, this isn't a dig at Amazon et al, it refers to all the business owners (our clients), who blag a bit of cash here and there.....

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Replying to petestar1969:
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By Ian McTernan CTA
13th Sep 2021 14:12

That might be your clients, but certainly not mine. Perhaps you need to start filing those MLR reports as you seem to be aware that your clients are doing it...

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Replying to Ian McTernan CTA:
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By tedbuck
13th Sep 2021 14:54

I don't know about clients but try to get repairs done in London and just see how many cash merchants there are. All on mobile phones as well and what does HMRC do - SFA - well they have invented MTD 4 ITSA but why will that make a difference if you aren't going to record manually why would you on a computer? HMRC Duh!

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By Ian McTernan CTA
13th Sep 2021 14:29

Rebecca is starting to fall into the trap that Amazon bashers use: state turnover, then moan about how 'little' Amazon pay in UK taxes as a percentage (check Tesco as a comparison, but no one moans about their tax compared to turnover...), but in reverse: compare the tax bills and highlight the increase in the tax bill rather than the overall tax rate on his total income.

Fred also fails to detail his total tax burden as it ignores the CT he has paid.

George doesn't pay Class 4 in isolation, he also pays class 2 and income tax. His income tax is £52,500 or so, so his total bill is around £58,500 rising to £60,200, and that's what he will care about. His effective rate of tax and NIC total will rise by around 1.13%

I have landlord clients whose tax bills have more than doubled due to Section 24...

And when I tell clients their tax bills, they are only interested in the total payable. Telling George his Class 4 bill has risen by 31% might make for a good sound bite but the figure he wants is the total bill, which has gone up marginally.

Meanwhile we have Section 24 which will force some landlords to pay tax on a 'profit' they haven't even made, yet Starmer thinks taxing them even more is the alternative (as well as driving away stock and shares transactions from the UK by taxing them more too).

I'd have little objection to rising the CGT rate provided indexation allowance is brought back in from date of purchase...

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Replying to Ian McTernan CTA:
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By Michael C Feltham
13th Sep 2021 20:37

@Ian McTernan

"I'd have little objection to rising the CGT rate provided indexation allowance is brought back in from date of purchase...".

I do! CGT is a wholly iniquitous tax levied on illusory value increases which are simply the result of Government incompetence in managing fiscal affairs.

I well remember Harold Wilson's "justification" when he introduced it...

"A man goes into the City, buys something and sells it the very next day for much more and pays no tax as it is a gain in capital not income!"

Mainly, capital gains are caused by monetary inflation; which is caused by Government incompetence.

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By tedbuck
13th Sep 2021 14:48

The whole thing is a con job.
The NHS is probably the most overstaffed (management wise) organization in the country, it is probably also the most wasteful, Blair lumbered it with PFI which probably trebles a lot of costs, it has no satisfactory purchasing set-up and the Doctors Trade Union , the BMA helps not a bit as it is just trying to grab the money for its overpaid members.
The 1.25% x 2 will never get to the care sector and Boris knows that as he has just authorised Council Tax increases to fund the care system. By the way the Council management can compete with inflated salaries with the best of the NHS.
You can't believe a word Boris says as he obviously hasn't a clue any longer. Got his mind on other things I imagine.
Even more disgusted of Tunbridge Wells

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