Background
The government has announced in the last week that they will be introducing a number of changes to income tax and National Insurance rates in order to support the NHS and help to reform the care sector. The prime minister has said that this will raise an extra £12bn per year with the money being ring-fenced for health and social care costs and tackling the backlog in the NHS from the pandemic.
Detail
From 6 April 2022, for the 2022/23 tax year, Class 1, 1A, 1B & 4 National Insurance Contributions (NIC’s) rates will increase by 1.25 percentage points. This temporary change affects all taxpayers currently paying National Insurance and so initially will not affect those employees and self-employed over pensionable age who do not currently pay NIC.
The income tax rate on share dividends will also increase by 1.25 percentage points taking the basic, higher and additional rates to 8.75%, 33.75% and 39.35% respectively.
By way of example a self-employed taxpayer earning £60,000 per year would pay the following in NIC’s:
|
|
2021/22 |
2022/23 |
|
Profit |
£60,000 |
£60,000 |
|
0% NIC on First £9,568 |
– |
– |
|
9/10.25% NIC on £40,702 |
3,663 |
4,172 |
|
2/3.25% NIC on £9,730 |
194 |
316 |
|
Total NIC |
3,857 |
4,488 |
As the above example shows, this taxpayer will pay an additional £631 as a result of the NIC increase.
For the 2023/24 tax year onwards, the National Insurance Contribution rates will return to their previous levels and the 1.25% will become a separate tax known as the “health and social care levy” (“HSCL”). As this will not be a part of the National Insurance system, the government are able to extend this levy to working individuals who are over state pension age. For those already paying the increased NIC’s in 2022/23, the change is in name only and individuals will not see any further increases in 2023/24 although they will notice the levy as a separate line on payslips from April 2023.
The care reform aims to provide assistance to those with personal care fees. From October 2023, there will be a cap on personal care fees of £86,000 over an individual’s lifetime. Anyone requiring personal care in excess of this amount will receive full support from the government.
Currently, individuals with financial assets of more than £23,500 are required to fully fund their own care costs. From October 2023, anyone with assets below £20,000 will not have to pay anything towards their own care and those with assets between £20,000 and £100,000 will be means tested so that those with less assets pay less towards their costs.
The HSCL will ultimately impact employees, employers, the self-employed and shareholders alike. In a future bulletin we will look at the particular impact on owner managed companies and how the levy affects the decision of whether to extract profit by way of a salary or dividend. In the meantime if you would like more information on how the change affects you please contact our Tax Director Jenny Marks.
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