What do the National Insurance rises and new Health and Social Care Levy mean for you?

Earlier this month Prime Minister Boris Johnson announced that the Government was passing proposals through Parliament to introduce an extra tax to increase funding to social care in England, and help the NHS recover after the pandemic. 

The outcome of this was that the National Insurance Contributions (NICs) paid by employees, employers, and the self-employed would rise by 1.25% for one year only from April 2022. 

From the tax year April 2023, National Insurance will return to its current rate, and the extra tax will be collected as a new Health and Social Care Levy. 

Read on for more details on how this will work and what it means for you… 

Who will pay more National Insurance? 

The NICS rise will cover: 

  • Class 1 – contributions by both employee and employer based on cash earnings 
  • Class 1A and 1B – employer contributions on non-cash benefits not payrolled and those employers involved in making PAYE settlements on behalf of employees 
  • Class 4 – paid by the self-employed on their profits 

Anyone above State Pension age and working is not affected. 

Individuals who only pay Class 2 and Class 3 National Insurance contributions will also not be affected. 

How much more National Insurance will you have to pay? 

As an example, an employee on £20,000 a year will have to pay an extra £130 annually, someone earning £30,000 per year would have to pay an extra £255, and someone earning £50,000 per year will pay £505 more. 

People earning under £9,564 a year, or £797 a month, will not have to pay the new levy. 

What is the new Health and Social Care Levy? 

From April 2023 a new ringfenced Health and Social Care Levy (HSCL) of 1.25% will be introduced. 

This new funding will mean that as of October 2023 there will be a cap of £86,000 on the amount that anyone in England will need to spend on care costs in their lifetime. 

Those with assets valued below £20,000 will not have use their savings, or extract money from the value of their home to fund their care. 

Where the value of assets are between £20,000 – £100,000, you will receive some means-tested support. 

The new levy of 1.25% will apply to those who pay: 

  • Class 1 (employee and employer) 
  • Class 1A and 1B 
  • Class 4 (self-employed) 
  • Those over State Pension age who are still working 

When this new levy comes into effect, NICs will return to their former level. 

If you have any questions about the new taxes, or how to deal with these as an employer, please get in touch with us here at Magpie Accountancy.