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What is the new Health and Social Care Levy?
Payroll Software Guide
The pandemic put a significant strain on the UK’s NHS and social care sectors. Given this, the government announced a plan to raise funds to reform these sectors via a new tax. As of April 2022, the new Health and Social Care Levy will be introduced across the UK.
Let’s go back to where it all started. On the 7th of September 2021, Prime Minister Boris Johnson announced a £12bn annual tax rise to fund England’s health and social care spending - all through a brand new levy. Called the Health and Social Care Levy, this new tax will result in increased National Insurance contributions from April 2022.
In this article, we’ll explain what the new Health and Social Care Levy is and what changes employers and employees can expect as a result.
Who will pay the levy?
The levy applies to employees and employers who currently pay Class 1 NIC. That means those over the state pension age on NIC category C or S will not pay the levy this year.
In addition to this, employers with employees under the age of 21, apprentices under 25 and veterans with NIC relief they still need to claim will only pay the levy under this circumstance: where the employees’ earnings exceed the upper secondary threshold of £4189 per month.
Will pensioners pay the Healthy and Social Care Levy?
From April 2023, those over the state pension age will begin to pay the levy. That’s because the levy will become separate from NIC contributions.
How much will employees and employers need to pay?
From April 2022, the 1.25% increase in tax will affect the standard EE NIC, increasing it from 12% to 13.25%. ER NIC will also rise from 13.8% to 15.05%.
For employers, this also applies to Class 1A NIC due on benefits in kind and Class 1B NIC on PAYE settlement agreements.
This new levy applies to all workers that earn over the primary threshold for NICS. For employees, this is set at £823 per month for 2022/23, while the threshold for employers stands at £758 per month.
| National Insurance category letter | Earnings at or above lower earnings limit up to and including primary threshold | Earnings above the primary threshold up to and including upper earnings limit | Balance of earnings above upper earnings limit |
|---|---|---|---|
| A | 0% | 13.25% | 3.25% |
| B | 0% | 7.1% | 3.25% |
| C | nil | nil | nil |
| F (Freeport) | 0% | 13.25% | 3.25% |
| H (apprentice under 25) | 0% | 13.25% | 3.25% |
| I (Freeport – married women and widows reduced rate) | 0% | 7.1% | 3.25% |
| J | 0% | 3.25% | 3.25% |
| L (Freeport – deferment) | 0% | 3.25% | 3.25% |
| M (under 21) | 0% | 13.25% | 3.25% |
| S (Freeport – state pensioner) | nil | nil | nil |
| V (veteran) | 0% | 13.25% | 3.25% |
| Z (under 21 – deferment) | 0% | 3.25% | 3.25% |
How would this be calculated?
Let’s say that an employee earns £20,000 a year. That means they’ll have to pay an extra £130.00. On the other hand, an employee that makes £50,000 annually will have to pay £505 more than they usually would.
Informing employees
Employers are being encouraged to inform employees of the increase in their NIC contributions by adding a simple message to their payslips. Here’s a suggestion from HMRC:
“1.25% uplift in NICs funds NHS, health and social care.”
What changes after the three years?
The initial plan for the health and social care levy has been outlined for the next three years.
From April 2023, there will be a new statutory deduction that employees will see on their payslips. It’s also important to note that the health and social care levy will apply to all workers, including workers over the state pension age, unlike regular national insurance contributions. However, employers who claim employment allowance will be exempt from their contributions.
But why was the Health Social Care Levy introduced in the first place?
What is the increase for?
As mentioned previously, the pandemic put an incredible strain on the NHS with COVID-19 patients. That, unfortunately, led to a backlog of sick patients building up who couldn’t access the medical care they needed.
According to the government, the funds raised will focus on decreasing this NHS backlog before being assigned to social care.
It's estimated that the levy will raise £11.4bn a year. The setup is similar to that in France and Germany, where social security contributions have been increased to fund the health care sector.
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Real-time calculations and payslip updates will always reflect the latest legislation changes, such as the new Health and Social Care Levy, reducing the time it takes to run payroll every month.
PayFit's disclaimer
The information contained in this document is purely informative. It is not a substitute for legal advice from a legal professional.
PayFit does not guarantee the accuracy or completeness of this information and therefore cannot be held liable for any damages arising from your reading or use of this information. Remember to check the date of the last update.
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