The Health and Social Care Levy involves the government’s announced plans to increase National Insurance contributions in September 2021 to fund increases in associated spending in England, alongside reforms to the provision and funding of social care. This follows Boris Johnson’s pledge, made upon becoming prime minister in July 2019, to “fix the crisis in social care once and for all”.
The increased rate has been billed as a Health and Social Care Levy, with the funds generated from the higher bands being ringfenced to support UK health and social care bodies. The levy represents a significant for organisations and their payroll teams, to whom it falls to ensure compliance with the new rates.
In this guide, we’ll run through exactly what the Health and Social Care Levy is, what it means for businesses and their people and what organisations need to do to ensure they are able to stay on top of the changes.
What is the Health and Social Care Levy?
As outlined by the Government, the Health and Social Care Levy is an increase set to last for the course of the financial year commencing on the 6th April 2022 and will see contributions raise by 1.25%, meaning those earning £20,000 a year will pay roughly £130 a year extra,
The levy will be a 1.25% tax on earnings for employees, the self-employed and employers. It will tax earnings in the same way as National Insurance contributions (NICs), except that it will also apply to the earnings of those over state pension age.
Before the levy is introduced all three rates of NICs will increase by 1.25 percentage points, in April 2022. This has the same effect as the levy, except that it will not apply to earnings over state pension age. NICs rates will then return to their current levels in April 2023, when the levy comes into effect, as set out in the table.
|
National Insurance Class |
Who this applies to |
|
Class 1 |
Employees earning more than £184 a week and under State Pension age - they’re automatically deducted by your employer |
|
Class 1A or 1B |
Employers pay these directly on their employee’s expenses or benefits |
|
Class 2 |
Self-employed people earning profits of £6,515 or more a year. If you’re earning less than this, you can choose to pay voluntary contributions to fill or avoid gaps in your National Insurance record |
|
Class 3 |
Voluntary contributions - you can pay them to fill or avoid gaps in your National Insurance record |
|
Class 4 |
Self-employed people earning profits of £9,569 or more a year |
Who is affected by Health and Social Care Levy?
The levy is set to affect all employees (both self-employed and otherwise) and employers who are eligible to make National Insurance contributions. The measures will also affect those who would be liable to pay National Insurance were it not for pension age restrictions.
Those paying class 2 or class 3 contributions (Which tend to be voluntary contributions to fill gaps in contribution records) will not be affected by this increase.
National insurance contributions will increase in April 2022
So what does this mean for contributions in terms of hard figures?
Here we’ve outlined the changes to National Insurance from April 2022 and how it relates to various salary bands and how it compares to previous contributions.
- Employees earning a £10,000 salary typically pay £52 paid: With their new contributions coming in at £57 with the levy increase, this is an extra £5 each year
- Those on a £20,000 salary contribute £1,252 now which rises to £1,382 with a 1.25% increase for a total outlay of £130 extra each year
- £30,000 salaries equate to a pre levy contribution of £2,452 paid which will increase to £2,707, meaning £255 extra each year
- Employees on a £40,000 salary pay £3,652 pre levy with the increase bringing them to; £4,032, equating to £380 extra each year
- Those on £50,000 pay £4,852 before the increase, with the levy bringing it to £5,357 equalling £505 extra each year
Who pays the Health and Social Care Levy?
As with the traditional National Insurance contributions, employers will deduct the levy from employee earnings, which will then be paid to HMRC on their behalf.
HMRC have provided messaging around the levy, explaining the increases and one which they heavily recommend that organisations include on all payslips for their personnel.
Implications of the Health and Social Care Levy for employers
For businesses, noncompliance with this levy as with many legislative shifts in pay can often lead to severe financial and legal penalties, meaning it becomes top responsibility for payroll professionals across all sectors to reconcile themselves to these changes in time for the advent of the new tax year.
There is also the responsibility as employers to communicate the changes to your employees and to consider the impact this may have upon them.
Advice from HMRC is for payroll teams to push out communication ASAP to all employees in order to ensure that they are made aware of the changes and how it will impact them and be represented within their payslips.
In light of the cost of living crisis and the constraints it may be placing on the finances of many, it is important to consider how the levy may impact your people. Even a small increase can have great significance if finances are already on a knife edge.
How is your business handling the changes?
Meeting the demands of the Health and Social Care Levy will be a familiar story to payroll professionals, of which will be no strangers to keeping on top of legislative shifts. As with any challenges the new financial year presents for organisations, it is vital that you have the proper systems and technology in place to help your payroll teams navigate through these changes.
Your payroll ultimately serves as a reflection of your overall brand as does your ability to remain compliant with shifts in legislation, which is why we’ve built these core elements into our own Payroll Software:
- Pay on Demand - Allow your employees the ability to draw down a portion of their wages early, giving them the flexibility they need to meet any unwelcome and unexpected costs. Incentivise over time or shift cover with same-day payments to employees who help cover absences. Pay on demand allows your employees to access any pay they have already earned that month, at no extra cost to your business.
- Employee Self Service - Allow your people greater visibility of their earnings with self service hubs which empower them with access to their schedule, wages and tax contributions at the touch of a button. The platform allows your people complete control of their money and can also be utilised to push through communications around financial rewards or overtime.
- Compliance - Matters of compliance, particularly in relation to tax, is a primary concern for all payroll departments. Advanced Payroll does the hard work for you, keeping on top relevant legislative changes so you don’t have to. Instant calculations can help ensure the information you are feeding through to HMRC is accurate and that any PAYE or National Insurance contributions are present and correct.
Fundamentally, we believe in payroll as a positive force across all organisations. Your people deserve to be rewarded for their hard work and a business which places pay at the heart of what they do will inevitably find they have a happier, more contented workforce - elements which all reflect positively upon your brand, particularly from the perspective of potential new hires.
Find out more about how Advanced Payroll can transform the way you meet the demands of the new Health and Social Care Levy and other big changes to ensure accuracy and compliance throughout the next financial year and beyond. Get in touch with one of our friendly team members today.
