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  • James Kingston

Health and Social Care Reforms

Boris Johnson today announced a ‘health and social care levy’ to be rolled out across the UK from Apr 22.


National Insurance Contributions (NICs)


From Apr 22 at the beginning of the new tax year, there will be a 1.25% increase in employee’s NI, employer’s NI (both class 1) and self-employed/partnership NI (Class 4). Class 2 (self-employed flat rate charge) and 3 (voluntary contributions) NICs are not impacted.


Employee’s NI – From 12% to 13.25% on earnings over £9,568 up to £50,270. From 2% to 3.25% on earnings over £50,270


Employer’s NI – From 13.8% to 15.05% on earnings over £8,840


Self-employed/Partnership NI – From 9% to 10.25% on earnings over £9,568 up to £50,270. From 2% to 3.25% on earnings over £50,270


From Apr 23, the NI rates will revert to their current levels, and the additional 1.25% increase will appear as a completely separate tax. The idea is to make the tax more palatable by legally ringfencing the revenue specifically for health and social care.


The employment allowance for qualifying small businesses (up to £4k worth of employers NI rebate) is protected.


Dividend Tax


Dividends are profit distributions made to shareholders of Companies. Many Company proprietors choose to pay themselves at least in part by this means.


A 1.25% increase will also be applied to all dividend tax rates. This means an increase from 7.5% to 8.75% for basic rate taxpayers, 32.5% to 33.75% for higher rate taxpayers and 38.1% to 39.35% for additional rate taxpayers.


Analysis


By way of an example, based on 21-22 tax thresholds, earnings of £30,000 will cost the taxpayer an additional £255 in taxation, whether they are an employee, employer, self-employed, in a partnership or are a shareholder receiving dividends. Naturally the tax burden increases exponentially as earnings grow.


NICs, complimented by dividend tax, were chosen for this increase because they cover the broadest of taxpayer populations. Income tax (employees), Capital Gains tax (asset holders), or Corporation Tax (Companies) for example are specific to a certain type of taxpayer.


Tax rises are tough, particularly after the couple of years we’ve had, and particularly as it breaks a core 2019 manifesto pledge. Brexit detractors would also question the necessity for tax rises given the promised post break-up windfall.


Supporters would point out how the unforeseen pandemic has had a profound effect on some of our crumbling service sectors not to mention public finances. As testing as tax rises are, clearing NHS waiting lists and funding social care is revenue expenditure, and it should be matched with revenue income (tax receipts) rather than capital income (borrowing).


For Company Directors, this will impact how we go about calibrating your salary and dividend remuneration for Apr 22 onwards, to limit your exposure, whilst protecting your access to your statutory benefits.


I’ll be in touch nearer the time these changes take affect. In the meantime if you have any questions or concerns please let me know.



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