National Insurance contributions and Dividend Tax to rise to pay for health and social care

A 1.25% increase in certain National Insurance Contributions (NICs) was announced by the Prime Minister to help fund health and social care costs from April 2022.

The 1.25% health and social care levy will be a separate tax to income tax and national insurance and is expected to raise almost £36bn for health and social care over the next three years.

Dividend tax rates will also rise by 1.25% payable on earnings above £2,000 per year but excludes those earned from investments held in ISAs.

The levy means that from October 2023, anyone in England with assets under £20,000 will have their care costs covered in full by the state, while those with £20,000 – £100,000 will be expected to contribute towards their costs but will also receive state support. Anyone with more than £100,000 worth of assets won’t receive state support.
Currently, anyone with assets worth more than £23,250 has to fund their care in full.

There will be an £86,000 cap on the amount anyone in England will need to spend on their personal care over their lifetime.

How the levy will be funded

The levy will be shared between individuals and businesses with those earning more, paying more.
It will be paid by all working adults, including workers over the state pension age.

Johnson confirmed that the highest earning 14% will pay around half the revenues and no one earning less than £9,568 will pay. He claimed that 40% of all businesses will pay nothing at all.

From 2022, the levy will simply appear as an increase to the NICs. Those above State Pension Age are not impacted by the April 2022 changes.

From 2023, the health and social care levy element will then be separated out and the exact amount employees pay will be visible on their pay slips. The levy will also apply to individuals above State Pension age with employment income or profits from self-employment above £9,568.

This increase will apply to Class 1 NICs paid by employees and Class 4 NICs paid by self-employed workers. It will be administered by HMRC and collected via the current channels for NICs; Pay As You Earn and income tax self-assessment.
Class 2 self-employed NICs and Class 3 NICs, which are voluntary payments made to top-up state pension gaps, are not impacted by the levy. The levy will also not be taken from pension income.

Although it is called a ‘levy’ this really is a rise in tax and it remains to be seen what happens to this ‘levy’ later on down the road. Maybe it would have been simpler to just increase income tax as opposed to add more complications to National Insurance, maybe tax does not have to be taxing!