Health and Social Care Levy

Published / Last Updated on 07/09/2021

The government has set out it plans to introduce a new Health and Social Care Levy at 1.25%.  This will be used pay for reforms and updating the NHS with the largest continued capital injections for decades in addition to funding a new cap on social care fees.

The government claims the proposals will raise an additional £12bn per year that will channelled to support both care and the NHS.  Just short of £10bn a year will go to the NHS and £2.2bn a year will be used to support local authorities, in addition to the social care precept within the council taxes that we pay.

The shortfalls in spiralling NHS costs are well documented.  In addition, there is a huge backlog for NHS care and non-emergency operations following the pandemic.

Care fees have been a ‘hot potato’ for decades with successive governments, both red, blue and coalition ‘ducking’ the issue.  The baby boomers post war and through to the 1960s are getting older and the strain on elderly care is huge.  The Care Act proposed a cap of the maximum capped amount an individual will be required to fund their social care throughout their lifetime.  From October 2023, the care fees limits will start:

  • People with assets (including property) below £20,000 will get their social care fully funded.
  • People with assets between £20,000 and £100,000 will get subsidised care.
  • People with assets in excess of £100,000 will still fully self fund their own care.
  • A care fees self funded payment cap with be set initially at £86,000.  We are not sure whether this cap will apply to all or just those below £100,000.

From October 2023, you will see a new line on your payslip below national insurance contributions called “Health and Social Care Levy”.

Who will pay?

Employees and Self employed will see a national insurance 1.25% levy. 

In addition, taxes on dividends will also increase by 1.25% meaning that small limited company firms, where many director/shareholders do not pay themselves huge PAYE salaries but declare dividends from profits, thereby avoiding national insurance contributions, will get caught by the additional dividend levy.  Dividend Tax Rates will therefore increase as follows:

  • Dividends within Basic Rate Tax Band (20.00 %) - tax due at 7.50% will increase to 8.75%.
  • Dividends within Higher Rate Tax Band (40.00 %) - tax due at 32.50% will increase to 33.75%.
  • Dividends within Additional Rate Tax Band (45.00 %) - tax due at 38.10% will increase to 39.35%.

Comment

The proposal will be debated by MPs in Parliament tomorrow and there are many dissenters.  Whilst, many directors (including the directors of this firm) will face a 'double whammy' of NIC increases and dividend tax increases, we have no problem paying an additional levy for the NHS and social care provided every single penny goes to support these unlike road taxes, where the RAC estimates just 31% of road tax revenues are spent on ‘our roads’ and the balance of c£20bn is redirected elsewhere.

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