There's a new tax in town. It's called the health and social care levy. Find out what it means for you.

The Government has announced tax increases to support the NHS and other health and social care providers. In the short term, this means a rise in national insurance and dividend tax. By April 2023, the plan is that it will be a new tax.

How the new tax will work - higher national insurance next year

From April 2022, people in work will pay an extra 1.25% in national insurance. This additional charge will be paid by every employee and self-employed person; employers will also need to pay the same amount again in extra NI contributions for staff. The effect is equivalent to about a 2p increase in income tax.

In April 2023, national insurance will return to its current rate and the 1.25% increase will be collected as a separate health and social care tax. At this point, working pensioners will also be paying the new tax.

A similar tax increase will apply to dividends from April 2022.

So what does this increase mean for you?

At a glance, the tables below show you how this will impact broad income levels - or use our calculator.

Employed earners

Annual salary

Current national insurance

National insurance after 1.25% increase

Increase in annual national insurance

National insurance as a percentage of income (after increase)

£20,000

£1,252

£1,382

£130

6.91%

£30,000

£2,452

£2,707

£255

9.02%

£40,000

£3,652

£4,032

£380

10.08%

£50,000

£4,852

£5,357

£505

10.71%

£60,000

£5,079

£5,709

£630

9.52%

£70,000

£5,279

£6,034

£755

8.62%

£80,000

£5,479

£6,359

£880

7.95%

£100,000

£5,879

£7,009

£1,130

7.01%

£130,000

£6,479

£7,984

£1,505

6.14%

Table can be reused with credit "figures from untied, the personal tax app - untied.io"

Self-employed earners 

Annual profits

Current national insurance

National insurance after 1.25% increase

Increase in annual national insurance

National insurance as a percentage of income (after increase)

£20,000

£1,097

£1,228

£130

6.14%

£30,000

£1,997

£2,253

£255

7.51%

£40,000

£2,897

£3,278

£380

8.19%

£50,000

£3,797

£4,303

£505

8.61%

£60,000

£4,016

£4,647

£630

7.74%

£70,000

£4,216

£4,972

£755

7.10%

£80,000

£4,416

£5,297

£880

6.62%

£100,000

£4,816

£5,947

£1,130

5.95%

£130,000

£5,416

£6,922

£1,505

5.32%

Table can be reused with credit "figures from untied, the personal tax app - untied.io"

Use our calculator

What you get - care costs

This will pay towards social care. Costs - for instance if you are elderly - will be capped at £86,000 per person. And if you have assets under £20,000 then your care will be completely supported by the state.

Keep it simple - the untied view

The Government are taking the opportunity to respond to pressures to improve care, and to support NHS and equivalent services that are very stretched by COVID. The plan is that this money will only be able to be spent on these things - something that tax economists call "hypothecation". However, it's also a way to increase taxes generally.

The Government is able to have a headline 1.25% increase, but because national insurance is paid by both employers and the employed, in total for many people it will amount to a 2.5% rise. And if national insurance is taken as a standalone tax, then the amount going into this pot will increase by around 10%.

untied is all about simplicity, and of course we'll be building any new tax into untied so that it is calculated automatically.

But the effort to create a separate tax will be an extra burden. Both on HMRC, with new systems, forms and rules; and on taxpayers. We already see confusion between the different thresholds and rates for income tax and national insurance. Why add more? We hope HMRC can find a simpler, more streamlined solution to raise money to address the social care dilemma.

(Thanks for the photo to Georg Arthur Pflueger on Unsplash - perhaps Georg can explain why they're both looking at the back of the phone)

 

 

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