The government has unveiled a health and social care plan that’ll see a 1.25% rise in National Insurance and dividend tax

To help the country bounce back from the devastating economic impact of the coronavirus, Prime Minister Boris Johnson has announced a 1.25% rise in National Insurance to help fund health and social care. Estimated to raise up to £12 billion a year, the National Insurance rise has gone against the Conservative Party’s manifesto pledge and has been greeted with mixed feedback. However, it’s not the only pledge that will impact the country. Limited companies will also be subjected to increased share dividend tax. This article will summarise the government’s health and social care plan and how it’ll impact workers in the UK.

With only 24 hours’ notice, MPs voted 319 to 248 in favour of the government’s health and social care plan to increase National Insurance for employees and employers by 1.25%. Estimated to raise up to £12 billion, the additional funds raised will support the NHS and provide much-needed improvements to the UK’s social care infrastructure. Boris Johnson described the new health and social care levy as “the right, reasonable and fair approach”.

Health and social care levy

Being dubbed as the new “health and social care levy”, the key proposals of the government’s new plan are outlined below. A majority of the plans will come into effect in April 2022, with a few exceptions.

• A maximum lifetime spend of £86,000 for people requiring care, excluding food and accommodation.
• Local authorities will be required to pick up the bill for people whose social care expenditure exceeds the £86,000 limit.
• People with assets worth between £20,000 and £100,000 could be eligible for support towards costs from local councils.
• If assets are worth under £20,000, people will not be required to contribute towards care from assets, but may have to provide contributions from personal income.
• Coming into effect in April 2022, National Insurance for employees and employers will increase by 1.25%.
• Permanent and self-employed workers above the State Pension Age will not be impacted by these changes in April 2022. Instead, the new levy will come into effect from April 2023 – to allow HMRC to update existing systems.

To put the new National Insurance increase in context, the government say it will cost someone £255 per year with a £30,000 salary, and £505 per year for someone earning an annual salary of £50,000.

The increase in National Insurance will apply to Class 1 (A and B) National Insurance Contributions (employees and employers) and self-employed professionals who pay Class 4 National Insurance Contributions. A few exceptions will apply, including relief for apprenticeships, the £4,000 employment allowance and employed veterans.

Dubbed the ‘Health and Social Care Levy’, the National Insurance hike will not exclusively impact employees in permanent employment. Contractors and freelancers using an umbrella company for their payroll will also be liable for increased National Insurance contributions – both employees and employers.

Dividend tax increase also announced from April 2022

Just like the increase in National Insurance, dividend tax will be increasing by 1.25% from April 2022. The new figures for UK businesses are outlined below:

• Basic rate will increase from 7.5% to 8.75%.
• Higher rate dividend tax will rise from 32.5% to 33.75%.
• Additional rate dividend tax will grow to 39.35% from 38.1%. This applies to those earning over £150,000.

The new rates of dividend tax will affect contractors and freelancers working through a personal service company (PSC). Andy Chamberlain, Director of Policy at IPSE (the Association of Independent Professionals and the Self-Employed), has expressed his displeasure at the government’s social care plan and its impact on the self-employed. In an article on IPSE’s website, he said:

“To limited company directors – from project managers to graphic designers – this is salt in a year of wounds… These changes will squeeze the battered self-employed community – limited companies and sole traders alike.”

However, in an address to the House of Commons, Boris Johnson justified the health and social care levy by saying “those who earn more, will pay more”.

Social care leaders express concern

Despite the government’s estimate that the new levy will raise £12 billion a year, Doctor James Townson, Chief Executive of the UK Home Care Association, raised concerns. He said:

“This is nowhere near enough. It will not address current issues and some measures may create new risks.”

Mike Padgham, the Independent Care Group chairman, also expressed his worry about the new government pledge. He said the health and social care levy was a “huge opportunity missed for radical, once-in-a-generation reform of the social care system.”

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