The government has announced its plan for funding the NHS and social care sector. This will include a new Health & Social Care Levy which will be delivered by a raise in Class 1 and Class 4 National Insurance Contributions (NICs) of 1.25%.
The 1.25% Levy in National Insurance Contributions applies from 6 April 2022 on:
- Employee Primary Class 1 NICs.
- Employer Secondary Class 1, Class 1A and Class 1B NICs.
- Class 4 NICs.
Class 2 and Class 3 NICs will be unaffected.
- This tax rise only affects working-age employees, employers and the self-employed.
- From 6 April 2023, the Levy will be distinct from NICs, which return to their lower rates. The new Levy will, from that point on, also apply to those individuals working above the State Pension age.
- All existing NIC reliefs available to employers will apply to the Levy also.
The government paper's tax impact statistics anticipate:
- 6.2 million people earning less than the Primary threshold/Lower Profits Limit (£9,568) in 2021/22 will not pay the Levy.
- Only 2% of individuals affected will be additional rate taxpayers, but will account for almost 20% of the revenues raised.
- In 2022/23, a typical taxpayer will pay the following additional amounts, depending on the tax band:
- Basic rate taxpayer (earning £24,100) - £180 extra.
- Higher rate taxpayer (earning £67,100) - £715 extra.
- About 40% of businesses will not be affected as the Levy will be covered by the Employment Allowance.
- Another 40% of businesses will face an increase of just £450 per annum.
- 70% of the revenues raised from businesses will come from only 1% of businesses - those largest with over 250 employees.
NIC rates
The proposed changes and current rates are set out below:
|
Proposed Employee rate 2022-23 |
Current Employee rate 2021-22 |
Band |
Current* |
Proposed Employer rate 2022-23 |
Current Employer rate 2021-22 |
Current* weekly earnings thresholds for secondary threshold (ST) |
| 0% | 0% | LEL | Up to £120 | 0% | 0% | |
| 0% | 0% | LEL- PT | £120 to £184 | - | - | |
| 13.25% | 12% | PT-UEL | £184 - £967 | - | - | |
| - | - | ST | £170 to £967 | 15.05% | 13.8% | Above £170 |
| 3.25% | 2% | UEL | Over £967 | 15.05% | 13.8% | Above £967 |
Notes
* The 1.25% tax rise will apply to earnings above the respective thresholds in future years, the government has yet to provide details of the earnings thresholds for 2022-23.
LEL= Lower Earnings Limit
PT = Primary Threshold
ST= Secondary Threshold
UEL = Upper Earnings Limit
Rates applying to Class 1A (payable on Benefits in kind) and Class 1B (payable on PAYE Settlement Agreements) will increase from 13.8% to 15.05%.
Proposed changes to self-employed rates
|
Proposed 2022-23 |
Current 2021-22 |
From 2022-23* |
2021-22 |
|||
|
Type of NICs: |
Profit bands |
Profits bands |
||||
|
Class 2 Flat rate |
TBA | £3.05 |
TBA |
£6,515+ |
||
|
Class 4 |
0% | 0% |
TBA |
Up to £9,568 |
||
|
Class 4 |
10.25% | 9% |
TBA |
£9,500 to 50,000 |
||
|
Class 4 |
3.25% | 2% |
Above TBA |
Above £50,000 |
||
Notes:
* The 1.25% tax rise will apply to earnings/profits above the respective thresholds in future years, the government has not provided details of the earnings thresholds for 2022-23.
How will this affect me?
Examples:
Current NIC liabilities for employee and employer versus the increased liability post 6 April 2022, for a selection of employee earnings levels.
| Earnings level |
£12,570 p.a. |
£50,000 p.a. | £100,000 p.a. | |||
| Earnings between Primary Threshold £9,564 & Upper Earnings Limit £50,270 | £3,006 | £40,436 | £40,706 | |||
| Earnings above Upper Earnings Limit £50,270 | - | - | £49,730 | |||
| Rate of basic NICS | 12% | 13.25% | 12% | 13.25% | 12% | 13.25% |
| Liability above Primary Threshold | £361 | £398 | £4,852 | £5,358 | £4,884 | £5,393 |
| Rate of higher NICs | 2% | 3.25% | ||||
| Liability above Upper Earnings Limit | £995 | £1,616 | ||||
| Total employee NICs | £361 | £398 | £4,852 | £5,358 | £5,879 | £7,009 |
| Total Additional Employee Contributions | £37 | £506 | £1,130 | |||
|
Employer contributions: Earnings above Secondary Threshold £8,840 |
£3,730 | £41,160 | £91,160 | |||
| Rate of NICs | 13.8% | 15.05% | 13.8% | 15.05% | 13.8% | 15.05% |
| Employer's liability | £515 | £561 | £5,680 | £6,195 | £12,580 | £13,719 |
| Total Additional Employer Contributions | £46 | £515 | £1,139 | |||
Self-employed individuals:
| Earnings level | £12,570 p.a. | Basic Rate: £50,000 p.a. | Higher Rate: £100,000 p.a. | |||
| Earnings between Lower Profit limit £9,568 & Upper Profit limit £50,270 | £3,002 | £40,432 | £40,702 | |||
| Earnings above Upper Profit limit | - | - | £49,730 | |||
| NICs basic rate | 9% | 10.25% | 9% | 10.25% | 9% | 10.25% |
| NICs Liability above Lower Profits Limits (£9,568) @ 9% / 10.25% | £270 | £308 | £3,638 | £4,144 | £3,663 | £4,172 |
| NICs higher rate | 2% | 3.25% | ||||
| NICs Liability above Upper Profits Limit (£50,270) @ 2% / 3.25% | £995 | £1,616 | ||||
| Total NICs payable | £270 | £308 | £3,638 | £4,144 | £4,658 | £5,788 |
| Total Additional Self-Employed Contributions | £38 | £506 | £1,130 | |||
Useful guides on this topic
National Insurance: Rates
National Insurances rates tables
External link:
Building Back Better: Our Plan for Health and Social Care
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