Health and Social Care Levy – new from April 2022

Article written by Neal Groves of Beavis Morgan and published by Integrity 365, a Beavis Morgan group company. 

Announced in September 2021 as a measure to increase funds for the National Health Service and to fund future social care, the Health and Social Care Levy has been introduced from 6 April 2022.

The levy is a 1.25% charge payable on earnings or profits which are chargeable to National Insurance. It is payable by employees, employers, and self-employed taxpayers.

The levy is being introduced in two stages. 

  1. The first stage from April 2022 is a transitional phase whereby all rates of National Insurance Contributions (NICs) are increased by 1.25%. 
  2. The second stage from April 2023 separates out the 1.25% levy from NICs and the other NIC rates will revert back to their previous levels.

This levy represents a 2.5% increase in the rate of tax on earnings of employment split equally between employee and employer. The 1.25% is an extra cost for an employer and should be considered in future budget planning.

Existing reliefs and allowances from employers such as the £4,000 employment allowance, and relief for employers of apprentices will also apply to the levy.

It is also worth bearing in mind that the increase also affects Class 1A National Insurance paid by employers on benefits in kind provided to employees so there is a further cost to an employer to be factored in.

For some share schemes operated by employers the levy will represent an increase in the NICs payable by both employer and employee on exercise of an unapproved option. Tax advantaged option schemes can offer some relief from tax and NIC for qualifying companies and employees.

Dividend tax rates

Announced at the same time as the levy was an increase in the rates of tax paid on dividends. This too represents a 1.25% increase at all levels of dividend taxation. The new rates are shown below: –

Tax Band Current rates Rates for 2022/23 tax year
Basic rate 7.5% 8.75%
Higher rate 32.5% 33.75%
Additional rate 38.1% 39.35%

The first £2,000 of dividend income received each tax year remains tax free.

For more information and specialist tax advice relating to your specific situation, contact Neal Groves, Head of Personal Tax at Beavis Morgan.