During late 2021 the government announced that it would support further funding of the NHS and social care sector through the introduction on a new ‘Health & Social Care Levy’.
This ‘levy’ is effectively (for the short term) a rise in National Insurance contributions of 1.25%.
This affects both:
- Class 1 (for the employed)
- Class 4 (for the self-employed)
Employers will also feel the pain as the class of National Insurance they have to pay on top of their team’s wages is also increased. This has risen from 13.8% to 15.05%.
As you can see, whether you are employed, self-employed or an employer – this additional ‘tax’ is going to chip away at your take-home pay or profits.
Here’s two examples of what this will cost you:
- Someone earning around £24,100 will lose about £15 a month
- Someone earning around £67,100 will lose about £59 a month
Something to note as an employer
If you employ a team, and can normally claim employment allowance, this can still be used against the Health & Social Care Levy. This may help ease the pain for some small employers.
A note for business owners taking dividends
You might think, “Sweet, I don’t pay national insurance on my dividends so happy days!” Sadly the government didn’t miss this one. They are also raising dividend tax rates by 1.25%…
Is there anything I can do to avoid and/or reduce the impact?
Right now, there is not really any one magic solution – it’s a flat increase.
The best thing you can do right now as a business owner is:
- Make sure you are reducing your taxable profits in the best way by claiming all the reliefs and tax-deductible expenses you can.
- For limited company owners, consider if you have large dividend needs next tax year (22/23), taking dividends earlier before the increase.
- For limited company owners, ensure you have the most tax efficient structure to pay yourself / take profits from the company.
If you are an employer, there can be options around salary sacrifice for pension contributions that may help with your team, but it’s quite niche and only attractive in specific circumstances.
I really need some help with making sure I’m not paying more tax than I need to. Ask your accountant or book a consultation with us to help you make the most of allowances and expenses. We offer a paid 1 hour, 1-2-1 consultation so you can ask simple questions of an accountant. You don’t have to become a client, so it’s a great way for you to get the help, when you need it.