National Insurance – Health & Social Care Levy
I am sure that most of you will now have heard that the Government is set to try and fix the Social Care System (in England) by implementing Social Care Reform. The sentiment has been well received, and rightly so, however the Government intends to fund this by increasing National Insurance Contributions (which has received some criticism as it goes back on a general election commitment as well as the impact on younger and lower earning workers).
The plan is to increase National Insurance Contributions (NICs) by 1.25% to 13.5% (for employees – on all sums between £184.01 and £967 / week). That is an increase of over 10% on your National Insurance contributions! An announcement of an explicit increase of 1.25% sounds a bit more palatable than a 10% jump in National Insurance! It’s about how you spin it sometimes, isn’t it?
Not only are employees being hit with this hike in National Insurance, so too are employers. Contributions for employers will jump from 13.8% to 15.05% (on all sums between £170.01 and £967 / week). Again, that is a jump of over 9% on the National Insurance contributions that employers must make for their employees.
Please note that this does not affect people over the state pension age nor anyone taking personal pension income (as no National Insurance is collected on these payments).
The plan is set to raise between £10 – £11 Billion per year. This additional payment, known as the Health and Social Care Levy (HSCL) element, will be separated out and visible on payslips so people will know exactly how much they pay towards this element of National Insurance. This reporting will begin in the 2023 / 24 tax year.
Please note that the Government plans for Social Care reform will not affect Social Care in Northern Ireland, Wales or Scotland as they have devolved Governments and therefore have their own care funding systems. However, as NICs are not a devolved tax, residents in these countries will have to pay the HSCL. The additional payments will however be returned to the devolved nations via the usual allocation formulae.
Dividend Tax
Company shareholders and those who receive dividend income from their investments are also set for a tax hike. This will look like –
| Tax Year | Basic Rate | Higher Rate | Additional Rate |
| 2021 / 22 (currently) | 7.5% | 32.5% | 38.1% |
| 2022 / 23 (onwards) | 8.75% | 33.75% | 39.35% |
Given the Budget announcement in March regarding the increase in various rates of Corporation Tax from April 2023 onwards, this will mean that company owners should take some time to consider how they take remuneration in the future.
Initially after the announcement in March – dividends looked less attractive. After the announcement last week about a hike in both Dividend Tax and National Insurance – the dividend option looks slightly better (in most cases). The question now is what is best for each individual case? Should income be taken primarily as Dividend, mostly Bonus or possibly a good mix of both? This is definitely one for discussion with both your financial planner and accountant.
The Silver Lining?
There is one – I promise! But only if you are an employee who sacrifices salary into a pension!
Salary Sacrifice is where you give up some of your top line income in order to get some more money into your pension. By sacrificing some of your income you pay less Income Tax and National Insurance. Your employer also pays less National Insurance as well. Quite often employers are happy to pay their National Insurance saving into your pension as the overall net cost is the same for them.
If you are sacrificing some of your salary into a company pension via your employer, and they are contributing their employer National Insurance saving (13.8%) then you are going to get some more money paid into your pension – an additional 1.25%.
Other News
State Pensions – Triple Lock – disapplied 2022 / 23
State Pensions also took a bit of a hit when the DWP (Department for Work & Pensions) announced that the earnings element of the Triple Lock just won’t apply for the 2022 / 23 tax year. Instead, the basic and new State Pensions will rise by the greater of 2.5% and CPI Inflation to September 2021 (likely to be around 3% based on Bank Of England projections).
The reason that the DWP removed the Triple Lock for next year is because the estimated growth in earnings would be “between 8% and 8.5%”. By taking the earnings element out of the State Pension increase lock for this year it means that there will be a huge saving for the Government. It also means that the base for future increases is set lower, meaning that revenue is saved for the Government moving forward. Look at that – 2 spending cuts in real terms at the same time – a blatant one and a stealthy one!
Budget – date confirmed
For the first time in 3 years there will be an Autumn Budget. The date for this is 27th October. It will be a big day for the current Chancellor – Mr Rishi Sunak as he will be presenting the Budget, The Office for Budget Responsibility (OBR) latest Economic and Fiscal Outlook and the 2022 – 24 Spending Review.
So all in all, it turns out hiking is good for your health after all – both physically, and when it’s a tax hike for the NHS budget.