• Date

    15 Oct 2021
  • Category

    Tax, Employer Solutions

New Health & Social Care Levy announced | What does this mean for employers?

On 7 September, the UK Government announced they will temporarily increase the rates of National Insurance Contributions (NICs) throughout the UK. This was triggered by the need to help fund the impact of the COVID pandemic on the NHS, as well as the growing costs of social care.

The rates of class 1 NIC (paid by employees and employers), class 4 NIC (paid by those who are self-employed), and dividend taxes will all increase by 1.25% for the 2022/2023 tax year, effective from April 2022.

The voluntary NIC payments, class 2 and class 3, used to top up gaps for state pension purposes, will remain unaffected by the new announcement.

The class 1 NIC increase will apply to the employees’ NIC element as well as the secondary employers’ element (see table below):

 

Employee

Main

Employee

Higher 

Employer

Current rates, 2021/2022

12%

2%

13.8%

New rates, 2022/2023

13.25%

3.25%

15.05%

 

For employers, the increase will also apply to:

  • class 1A NIC on benefits and termination payments exceeding £30,000, and;
  • class 1B NIC on items included in a PAYE Settlement Agreement (PSA).

It is understood that the class 1A NIC on benefits for 2021/2022 will remain at the current rate of 13.8%, even though it will not be payable until the 2022/2023 tax year, as the liability will relate to benefits from 2021/2022. This will be a similar case for the class 1B NIC for the 2021/2022 PSA’s. However, the class 1A NIC for benefits and class 1B NIC for PSA’s for 2022/2023 will increase to a rate of 15.05%, even though they are payable in the 2023/2024 tax year.

From April 2023, the NIC rates will return to their current rates. The additional 1.25% will be ring-fenced as a separate legislated charge, labelled as a new Health and Social Care Levy. This levy will appear as a separate line item on payslips, similar to the PAYE tax and NIC entries.

This levy will be payable by all working adults, including those above state pension age who are exempt from NIC.

For further information regarding the changes to the National Insurance Contributions and Dividend tax rates, read our previous article

What does this mean for employers?

The increases in class 1 NIC will result in inflated employer costs and will need to be factored into both budgets and forecasts, especially as employment costs are typically a business’ largest expenditure.

Employers are still of course recovering from the impact of the pandemic and the subsequent downturn in operations, with further staff cuts likely resulting from the end of the Job Retention Scheme (JRS) on 30 September 2021.This will no doubt add to their burdens.

To help mitigate the cost impact of the rising rates, employers may consider adjustments to employee salaries or customer pricing.

Our recommendation

If not already in place, Salary Sacrifice schemes would be well-worth considering. Despite the UK Government’s withdrawal of some tax and NIC incentives in April 2017, some benefits still remain which attract generous tax and NIC reliefs under salary sacrifice arrangements, these being:

  • Employer pension contributions
  • Ultra-low emissions cars, with CO2 emissions of up to 75g/km
  • Equipment under cycle-to-work schemes

These areas provide opportunities for significant employer and employee savings and the latest NIC rate increases provides opportunity for further savings. We are seeing an increasing number of businesses use salary sacrifice to optimise the remuneration package leading to improvements in employee attraction and retention.

As we move towards seeking more green energy alternatives, ultra-low emissions vehicles provided under a salary sacrifice arrangement are becoming increasingly attractive bearing in mind the low ‘Benefit in Kind’ tax rates applied for such vehicles.

We are here to help

If you have any queries about the NIC changes or wish to explore salary sacrifice opportunities in further detail, our specialist Employment Tax team at Azets are on hand to provide support and guidance, or speak to your usual Azets contact

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