Health and Social Care Levy – Finance (No. 2) Bill
18 November 2021, Advocates, Artists, Barristers, Companies, Creative Industries, Employer, Musicians, Sole Traders
The budget confirmed a few increases to tax which are likely to stoke inflation in the form of the Health and Social Care Levy. The Finance Bill is currently passing through the legislative process to introduce tax increases for most people.
How does the budget affect my business?
The figure of 1.25% crops up in the 2021 budget with increases to National Insurance and income tax leading to permanent levy from April 2023. This will affect all business owners whether you are self employed or a company director.
Health and Social Care Levy
The budget included details of the National Insurance and tax increases. The measures in the Health and Social Care Levy Act 2021 provide for a temporary 1.25 percentage point increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 National Insurance contributions for the 2022 to 2023 tax year.
The revenue raised will go directly to support the NHS and equivalent bodies across the UK. From April 2023 onwards, the National Insurance contributions rates will decrease back to 2021 to 2022 tax year levels and will be replaced by a new 1.25% Health and Social Care Levy where the revenue will be ring-fenced to support UK health and social care bodies.
Employers
If you employ staff you will have an extra 1.25% added to your Employer’s National Insurance. The effect for most payrolls will be a rate of 15.05% from 6th April 2022 compared to the current 13.8%.
Self Employed
National Insurance rates are going up for the self employed too. Class 4 NIC are paid on profits above the lower profits limit (£9,568 in 2021/22).
| Class 4 NIC | To 5th April 2022 | From 6th April 2023 |
|---|---|---|
| Rate between Lower Profits Limit and Upper Profits Limit | 9% | 10.25% |
| Rate above Upper Profits Limit | 2% | 2.25% |
Company Directors
If you receive a salary from your company, an extra 1.25% will be calculated on any earnings subject to Employee’s National Insurance raising the rate from 12% to 13.25% from 6th April 2023.
Dividends
The rates of income tax applicable to dividend income will be increased by 1.25% from 6 April 2022. This means that the ordinary, upper and additional rate will become 8.75%, 33.75% and 39.35% respectively. The dividend allowance will remain at £2,000.
| Tax on dividends | To 5th April 2022 | From 6th April 2023 |
|---|---|---|
| Ordinary rate | 7.5% | 8.75% |
| Upper rate | 32.5% | 33.75% |
| Additional rate | 38.1% | 39.35% |
What does the levy mean for inflation?
The increases of 1.25% across the board are intended to recoup some of the additional spending on Covid measures. The additional rate starts off as National Insurance for the tax year to 5th April 2023, but become a Health and Social Care Levy from 6th April 2023.
What can I do about the tax increases?
Any freelance income, bonus, salary or dividends paid from 6th April 2022 will have an extra 1.25% of deductions applied as above compared to the tax and National Insurance suffered on earnings before this date. Make sure you have up to date accounts during March so you can calculate the maximum dividend you can pay in the 2021-22 tax year.
If you are a sole trader and have a choice between cash and accruals accounting, consider accruals accounting so you can increase your income with Work in Progress and shift more earnings into the current year with the lower rates of National Insurance.
If you don’t already have Xero accounting software and Xero Gold Partner as your accountant, contact Alterledger on the form below and let us help you get the clarity you need on your accounts.
