United Kingdom NIC and Health and Social Care Levy
Published on September 17, 2021
It has recently been announced that there will be an increase in National Insurance Contributions (NIC) by 1.25 percentage points across the whole UK from April 2022. This is projected to raise £12bn annually which is earmarked to pay for health and social care.
The increase will apply to employees and self employed individuals, including partners in partnerships/LLPs, earning above the Class 1 Primary Threshold or Class 4 Lower Profits Limit. The increase will also apply to employer’s NIC and, therefore, the overall increase is 2.5% covering employee’s and employer’s NIC. Class 1A NIC (benefits in kind) and Class 1B (PAYE Settlement Agreements) are also to increase by 1.25% percentage points.
From April 2023 the increase will be reclassified as a “health and social care levy” and charged separately from NIC with the NIC rates reducing accordingly. However, from April 2023 the 1.25% “health and social care levy” will be extended to self employed individuals or partners over State Pension age who are currently exempt from NIC.
Whilst existing reliefs and allowances from employer’s NIC will apply to the levy, including the employment allowance, reliefs for employers of apprentices etc. the overall impact will be significant for many employers.
So that this increase is not limited to employees, employers and the self employed, it has also been announced that all income tax dividend tax rates will increase by 1.25% from April 2022.
A summary of the current NIC and dividend tax rates as well as the rates from April 2022 (before the 1.25% NIC increase is charged as a separate levy from April 2023) is as follows:
The levy, including the temporary NIC increase for 2022/23, is to be legislated for shortly. The levy is intended to fund social care in the UK, the financing of which is to change from October 2023 with an individual’s contribution to certain care costs to be capped.