On Tuesday 7th September, the Prime Minister announced the Government’s plans to address the financial impact of Covid-19 on the NHS and to provide additional funding for health and social care services with effect from April 2022. The full document can be found here.

 

Health and Social Care Levy 

From April 2022, there will be a temporary 1.25% increase in national insurance contributions (NICs) paid by employees, the self-employed and employers. The increase will apply to main and higher rate NICs and revenue will be added to the existing NHS allocation. 

From April 2023, the 1.25% Levy will be formally separated from NICs and revenues ringfenced for health and social care. At that point, the Levy will also apply to those in employment above State Pension age, who are currently exempt from paying NICs. 

The increase will apply to employed and self-employed individuals earning above the Class 1 primary threshold and Class 4 lower profits limit (currently £9,568). Employers will pay the additional 1.25% for employees earning above the secondary threshold (currently £8,840). 

The increase will not apply to Class 2 NICs (the flat rate paid by the self-employed with profits above the Small Profits Threshold, currently £6,515 per year) or Class 3 NICs (voluntary contributions for taxpayers). Existing reliefs to support employers will also apply to the Levy.

 

Increased Dividend Tax Rates 

From April 2022, the rate of dividend tax will also increase by 1.25%. This measure is intended to bring the contribution of business owners and investors in line with that made by employees and the self-employed. 

The new tax rates for dividend income will be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. The first £2,000 of an individual’s dividend income will continue to be charged at 0% (the Dividend Allowance). 

These changes will apply across the UK and are not impacted by the Scottish rates of income tax.