On 7 September, the Government announced the creation of a new Health and Social care levy which commences from 6 April 2022. For the 2022/23 tax year the levy will be implemented by a simple increase in the rate of Class 1 and 4 NIC.
From April 2023 this will be replaced with a new tax – the “Health and Social Care Levy” - which will be shown separately on payslips and self-assessment payments. This means increasing costs for your practice as an employer as well as for your partners as self-employed taxpayers.
NIC increase for 2022/23 Tax Year
For the 2022/23 tax year, the Class 1 NIC (including Class1A and Class 1B paid by employers on employee expenses and benefits) and Class 4 NIC rates will be increased by 1.25% for employees, employers and the self-employed, so a total increase of 2.5% in respect of employed workers (split between the employer and employee) and 1.25% for the self-employed. For example, a GP with self-employed profits of £100,000 will pay an additional £1,130, assuming the NIC thresholds are not changed.
At this stage, it is not clear whether there will be any change in the thresholds for the different NIC rates for 2022/23 but this should be clarified in the Chancellor’s Budget announcements on 27 October 2021.
Health and Social Care Levy from April 2023
From April 2023, NIC rates will return to previous levels but the "Health and Social Care Levy" will appear separately on payslips and self-assessment payments. When this takes effect, the 1.25% levy will also apply to those still working above state pension age (who do not pay NIC). The new levy will apply to the same population and income as Classes 1 and 4 NIC and will be collected via PAYE and self-assessment.
Impact on employers
As the new levy will create significant extra employment costs for many businesses it is important to analyse the impact it will have on your cashflow and profitability for 2022/23 and later years.
An employee paid £30,000 per annum will pay an additional £255 per year under these measures with an additional £264 payable by the employer.
If you do not already offer varied reward packages to employees it will be worth investigating how using these could help you manage your overall employment costs. For example there are employee benefits which have a low taxable/NICable value such as electric vehicles that will be attractive to employees.
Businesses that already have robust systems in place to manage their off-payroll labour/IR35 obligations may also consider managing future expansion through use of contractors to reduce their employer NIC costs. However, there are many pitfalls for the unwary and each contractor engagement must be assessed on its own merits.
Practices have six months to prepare for these increased costs and those who start the process now have the best chance of limiting any negative impact on their business.
If you would like assistance in assessing the financial impact of these additional costs as an employer and opportunities to mitigate these please get in touch with our team.