New UK Health and Social Care Levy and Impacts on Pay
by Yonatan Muyal, UK Accountant and Payroll Manager at Deel
COVID-19 has had devastating effects on both the UK economy and the national health infrastructure. Enormous financial pressure has been put on the National Health Service (NHS), creating delays and backlogs to critical care and support for Britons.
What is the Health and Social Care Levy?
As a result of the pandemic, the UK government announced a UK-wide increase in the rates of National Insurance, going back on a 2019 pledge to not raise taxes. The revenues generated from this tax increase will go directly towards funding the public financial deficit. In addition, a portion will be used to address the funding gap for health and adult social care.
The new Health and Social Care Levy (HSC) will apply to all UK workers. It’s anticipated to add an extra £12 billion per year for health and social care needs.
What does it mean for me?
Beginning April 2022, National Insurance Contributions (NICs) will increase by 1.25%. This applies to employees (Class 1 primary contributions), self-employed individuals (Class 4 contributions), and employers (Class 1 secondary contributions).
Currently, employees pay National Insurance Contributions when their income goes over a certain amount, called the primary threshold. The primary threshold is currently £9,568 for the 2021/2022 tax year.
Starting April 2022, employees will pay 13.25% (increase from 12%) on annual income above the primary threshold, up to an upper earnings limit of £50,270. Above the upper earnings limit, you will pay 3.25% (increase from 2%). That means the more a taxpayer earns, the more they’ll contribute, but it’ll become a smaller proportion of their pay package.
Employers will be required to pay their share of National Insurance contributions for employees earning above an amount called the secondary threshold. The secondary threshold is currently £8,840 per annum for 2021/2022. Starting April 2022, employers will pay 15.05% (increase from 13.80%) on salaries above the secondary threshold.
For employees, NICs are automatically deducted from paycheques under a Pay As You Earn (PAYE) system, just like with income tax. Contributions are mandatory for individuals aged between 16 and the State Pension Age. The government will seek to include workers over the State Pension Age beginning in April 2023.
Due to administrative constraints, the new levy will be temporarily integrated into the National Insurance contribution rate. Starting April 2023, a new tax will be created and shown as a separate tax on payslips, while the National Insurance rate will return to its initial rates.
The Bottom Line, in Numbers
As a result of the HSC Levy, all employers and employees in the UK including Scotland, Wales, and Northern Ireland will see changes to payroll. For example, an employed individual will see their National Insurance contribution increase as follows:
|
Gross Annual Salary |
Employee National Insurance (Currently) |
Employee National Insurance (After April 2022) |
Difference |
|
£30,000 |
£2,452 |
£2,707 |
£255 |
|
£50,000 |
£4,852 |
£5,357 |
£505 |
Employers will need to take into account that employer contributions will increase, although this will be offset by savings on corporate tax liability. Speak to your accountant or bookkeeper for assistance with tracking and deducting this tax expense.
UK Payroll with Deel
Deel handles all things global payroll, so if you have UK employees with Deel, no need to worry. The HSC Levy will be automatically accounted for on your pay cycles.
Not yet using Deel? Deel lets you hire independent contractors and employees in over 150 countries, stay compliant with local labor laws, and handle global payments. Schedule a demo to find out more.
Further Reading
- Health and Social Care Levy Policy paper - GOV.UK
- Rates and thresholds for employers 2021 to 2022 - GOV.UK
- Health and Social Care Levy Act 2021 - Parliamentary Bills
- 5 Ways of Offer Health Insurance to Remote Workers
Disclaimer: This article is provided for informational purposes and should not be treated as financial advice. Check with an accountant for support and consult official sources for the latest information.
