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NIC health hike: Further complications emerge

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Issues are emerging concerning the NIC increases due to apply from 6 April 2022 and the Health and Social Care levy due to replace that tax rise from 6 April 2023.

17th Sep 2021
Tax Writer Taxwriter Ltd
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The provisions to increase the NIC rates (classes: 1, 1A, 1B and 4) are included in the Health and Social Care Levy Bill 2021, which has already passed its House of Commons stages in Parliament, so is likely to become law very shortly.

Expanding the base

The Health and Social Care Levy Bill makes it clear that the increase in NIC will only apply for one tax year: 2022/23, as from 6 April 2023 the Health and Social Care (HSC) Levy will replace the top 1.25% of NIC in all cases.

However, the state pension age restriction for primary class 1 and class 4 NIC will not apply to the HSC levy (clause 3(3)). This means that new tax will be payable by pensioners who are still working as employees or are self-employed after 5 April 2023, if they earn over the primary threshold of £9,568 per year.

Employer reliefs

There are three categories of employee where the employer can currently pay a zero rate of secondary class 1 NIC on the employee’s pay up to the secondary threshold (£50,270 pa). Those categories are:

  • Anyone aged under 21
  • Apprentices aged under 25
  • Ex-forces personnel in their first civilian role for up to 12 months

In addition, from 6 April 2022 a zero rate of secondary class 1 NIC will be available on employees’ wages who work for least 60% of their time at Freeport tax site. This zero-rate will apply up to a new secondary threshold which is expected to be set at £25,000 per year.

The HSC levy won’t be payable by the employer on employees’ wages where the zero rate of secondary class 1 NIC applies (clause 1(5)).

Employment allowance

HMRC has stated that the employment allowance can be set against the increased secondary class 1 NIC for 2022/23, but what is not clear is whether the employment allowance will be available to set against the HSC levy from April 2023.

The Employment Allowance is not mentioned in the Health and Social Care Levy Bill 2021, but relief may be provided by regulations made under clause 4(2) after the Act is passed.

Scottish rates

The Scottish Parliament has the power to set its own rates and thresholds for income tax, so since 2017 the Scottish tax bands do not tie up with the thresholds for NIC in the rest of the UK. This is because powers to set the NIC thresholds have not been devolved to the Scottish Parliament.

The result for 2022/23 will be some very high marginal tax rates (see table) for Scottish taxpayers on earnings and profits. The Scottish income tax rates do not apply to income from savings, dividends, or to set the level of capital gains tax payable. 

Example: Employee in Scotland in 2022/23

Income in band (including personal allowance)  £ Scottish tax% NIC% Total rate on band %
0 – 9,568 0 0 0
9,568 – 12,570 0 13.25 13.25
12,571 – 14,667 19 13.25 22.25
14,668 – 25,296 20 13.25 33.25
25,297 – 43,662 21 13.25 34.25
43,663 - 50,270 41 13.25 54.25
50,271 – 100,000 41 3.25 44.25
100,001 – 125,140 61.5 3.25 64.75
125,140 to 150,000 41 3.25 44.25
Over 150,000 46 3.25 49.25

This table assumes that Scottish income tax rates and thresholds will remain at their present levels in 2022/23.

Marginal madness

The 54.25% marginal rate between £43,663 and £50,270, is due to the Scottish higher tax rate of 41% starting at a lower level than the reduced NIC rate, which is aligned with the 40% band in the rest of the UK. Taxpayers in England, Wales and Northern Ireland will pay a marginal tax rate of 33.25% on earned income in this band.

The 64.75% marginal rate between £100,001 and £125,140 arises because the personal allowance is withdrawn by £1 for every £2 of additional income in that band.  

Alexander Garden, chair of the CIOT’s Scottish Technical Committee, noted that most employees will pay an extra £37.53 per year more than they would have if the government had decided to fund the social and health care package through income tax.

Universal credit 

In 2022/23 Universal Credit claimants should have their benefit topped up to compensate for some of the loss of income resulting from the NIC increase in 2022/23. This is because entitlement to Universal Credit is worked out after income tax and NIC deductions are taken into account.

However, it is not clear whether the new HSC Levy will be treated in the same way as NIC for Universal Credit purposes. UC claimants need to know whether they will continue to get this protection once NIC rates revert back to the 2021/22 levels.

Replies (8)

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By Hugo Fair
17th Sep 2021 13:46

A good start Rebecca (which is not meant to be as patronising as it may sound)!

One pedantic point, under Employer Reliefs you list categories where the employer can currently pay a zero rate of secondary class 1 NIC on the employee’s pay up to the secondary threshold - and say "Ex-forces personnel in their first civilian role for up to 12 months".
But I was under the impression that it applies for a period of 12 months that commences when the eligible person starts their first paid civilian role after service ... and that this isn't limited to that first civilian employment (i.e. they can change employer and the new one will take on the remaining relief period).

Other questions that have arisen and to which I have as yet no answers:

1. HMRC have requested (although not mandated) that all Payslips in 2022-23 include a generic ‘message’ to explain that the increase in NICs are for the Health & Social Care fund.
I'm told some Civil Servants are spitting blood over this - as they interpret it as CS being told to push a message that is basically Govt PR (i.e. in support of a policy of this govt), which is anathema to the basic relationship between Govt and the CS!

2. Payslips from 2023-24 will be mandated to show the H&SC Levy amounts separately from other deductions (presumably as this period and YTD figures), but we don't yet have any indication as to how it should be calculated (e.g. per employee or per company or per PAYE scheme .. and on gross or NI’able earnings or what .. and within what bands ... or indeed paid how and to whom and when).

3. Logically the need to show the H&SC Levy amounts will mean changes to other standard forms (such as P60s), but as yet there has been nothing said on such impacts. Nor indeed on the almost certain additional data items that will be needed within RTI (whether FPS or EPS).

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By Stargazer42
20th Sep 2021 10:23

Has anyone worked out the marginal rates and additional costs (over funding through income tax) for the rest of the UK?

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By NeilW
20th Sep 2021 10:36

It's way past time to simplify this.

It should all be placed on Employers' NI, and we should stop pretending tax is hypothecated when it is blatantly obvious it isn't. Anybody who still believes it is after the last year needs to change whatever they are smoking.

Then we don't need extra lines on payslips and we don't need changes to existing employee side NI law - which is already stupidly complex.

The point of tax is to stop people being employed in the private sector so they can be hired for whatever the government wants to do instead - in this case increase social care and health service provision. So let's cut out the middleman and just do that.

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Replying to NeilW:
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By tax91
20th Sep 2021 11:17

You are absolutely right.

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By Ammie
20th Sep 2021 10:38

I am not surprised in the slightest!

What a potential utter mess, doesn't bear thinking about, certainly not on a Monday morning.

No doubt as many are thinking, a taster of what is to come with MTD.

Decision making on par with Boris' appearance.

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By miltonbank
20th Sep 2021 11:46

... and if you start to loose child benefit once you earn over £50,000 in Scotland, your take home pay is 25.25p in the £!

Not something that I enjoyed telling a client!

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By Carol Jefferis
20th Sep 2021 11:49

Oh my, what a ridiculous layer of obfuscation over confusion over complication.
If only we could have a government with the nerve, guts or chutzpah to admit that for decades National Insurance has been little more than a ponzi scheme which has nothing to do with insurance and is simply another form of tax on income.
Abolish NI and increase taxes. Corporation tax could be increased to pick up the corporate employer's element. Income tax increased to plug the rest of the NI gap.
With no NI to avoid then the employed / self-employed / IR35 working through a PSC debate becomes largely redundant.
So obvious, just a question of how to sell it at the ballot box - though you would have hoped that a government of any colour with a huge majority might have had the vision to try.
Maybe this is another fail for the Office of Tax Simplification, surely they must have made the suggestion.

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By AndrewV12
23rd Sep 2021 10:46

O.M.G.

I hope my taxation software is up to it, its getting complicated, why didn't they just add a penny to Income tax.

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