Health and Social Care Levy
Updated 13 December 2021
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1. Who is likely to be affected
Employers, employees and the self-employed who are liable to pay National Insurance contributions and individuals that would be liable to pay National Insurance contributions were it not for pension age restrictions. Individuals who only pay Class 2 and Class 3 National Insurance contributions will not be affected.
2. General description of the measure
This measure provides for a temporary 1.25 percentage point increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 National Insurance contributions for the 2022 to 2023 tax year and revenue raised will go directly to support the NHS and equivalent bodies across the UK. From April 2023 onwards, the National Insurance contributions rates will decrease back to 2021 to 2022 tax year levels and will be replaced by a new 1.25% Health and Social Care Levy where the revenue will be ringfenced to support UK health and social care bodies.
Individuals above State Pension age will not be affected by the temporary increase to National Insurance contributions for the 2022 to 2023 tax year but will be liable to pay the levy from April 2023.
The new Health and Social Care Levy will be subject to the same reliefs, thresholds and requirements of the qualifying National Insurance contribution (Class 1, Class 1A, Class 1B or Class 4) in respect of which the Levy is payable.
3. Policy objective
The Government is committed to responsible management of the public finances. The plan for health and social care set out by the Prime Minister and Secretary of State for Health and Social Care will lead to a permanent increase in spending. It would be irresponsible to meet these costs through higher borrowing, particularly in the context of record borrowing and debt to fund the economic response to COVID-19. The Government has therefore taken the decision to increase taxation.
All parts of the UK need a long-term solution to funding health and social care. This levy provides a UK-wide approach which enables us to pool and share risks and resources across the UK, leveraging the benefits of the Union for all our citizens.
3.1 Background to the measure
This measure was announced on 7 September 2021 and is being implemented at the earliest opportunity to increase funds for the National Health Service.
4. Detailed proposal
4.1 Operative date
The transitional increase to the main and additional rates of National Insurance contributions will take effect from 6 April 2022 and will last for the 2022 to 2023 tax year only. The new Health and Social Care Levy will take effect from 6 April 2023.
4.2 Current law
The Social Security Contributions and Benefit Act 1992 (and Northern Ireland equivalent) sets out the various National Insurance contributions that employees, employers and self-employed individuals are liable for. Section 5 provides for primary and secondary Class 1 National Insurance contributions (employees and employers), Section 10 provides for Class 1A National Insurance contributions, section 10A provides for Class 1B National Insurance contributions (employers) and Section 15 provides for Class 4 National Insurance contributions (self-employed).
4.3 Proposed revisions
The Health and Social Care Levy Bill will provide for a 1.25% levy which is payable on an amount of earnings or profits on which an employee, employer or self-employed individual is already liable to pay a qualifying National Insurance contribution (Class 1, 1A, 1B and 4 NICs). For administrative purposes, the levy will operate in the same way as National Insurance contributions so the Bill will apply National Insurance contributions legislation to the levy.
The new Bill will stipulate how the proceeds from the new Health and Social Care Levy will be used.
The Bill will also make transitional provisions that will amend Part 1 of the Social Security Contributions and Benefits Act 1992 (and the Northern Ireland equivalent) for the 2022-23 tax year and apply a temporary 1.25 percentage point increase to each of the qualifying National Insurance contribution rates.
4.4 Summary of impacts
4.5 Exchequer impact (£bn)
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The final costing will be subject to scrutiny by the Office for Budget Responsibility, and will be set out at the Budget.
4.6 Economic impact
The measure is anticipated to have a significant macroeconomic impact, with consequences including but not limited to for earnings, inflation and company profits. Behavioural effects are likely to be large, and these will include decisions around whether to incorporate or not, and business decisions around wage bills and recruitment.
4.7 Impact on individuals, households and families
The impact analysis that follows relates specifically to the impact of the legislative provisions outlined above. Losses are presented compared to the National Insurance contributions individuals would have faced if the rate remained unchanged.
The levy will be paid by employed and self-employed individuals earning above the Primary Threshold and Lower Profits Limit (£9,568 in 2021 to 2022 tax year). In 2022 to 2023 tax year an individual earning the median basic rate taxpayer’s income of £24,100 would be expected to pay an additional £180; and an individual earning the median higher rate taxpayer’s income of £67,100 would be expected to pay an additional £715.
Actual losses for individual taxpayers will vary according to individual circumstances.
There may be an impact on family formation, stability or breakdown as individuals, who are currently just about managing financially, will see their disposable income reduce.
4.8 Equalities impacts
It is not anticipated that there will be direct impacts on groups sharing protected characteristics as this measure applies regardless of personal circumstances or protected characteristics in so far as they are impacted by changes to National Insurance contributions.
As the levy will be a 1.25% rate on all income above the Primary Threshold, the higher an individual’s earnings, the more they will pay. Individuals with higher earnings tend to be white, male and without a disability. For the 2022 to 2023 tax year only, this measure will also only impact those below State Pension age.
In 2022 to 2023, of the 29.0 million individuals that will lose out from this measure 15.6 million (54%) are male and 13.4 million (46%) are female.
This measure is also likely to disproportionately impact individuals whose income is predominantly made up of earnings or profits, as opposed to other forms of income such as property income, pension income or savings because the Health and Social Care Levy, as well as National Insurance contributions, is not charged on those forms of income.
4.9 Impact on business including civil society organisations
This measure is expected to have a significant impact on over 1.6 million employers who will be required to introduce this change. One-off costs will include familiarisation with the change and could also include updating software or systems to reflect the change. A further one-off cost could include updating employee payroll records to reflect this change. This measure will also impact payroll software providers who will have one-off cost of familiarisation and will also be required to update software to reflect this change, the cost of which may be passed onto customers.
Customer experience is expected to remain broadly the same as this measure does not significantly alter how employers interact with HMRC. This measure is not expected to impact civil society organisations.
4.10 Operational impact (£m) (HMRC or other)
The introduction of the levy from April 2023, and the transitional arrangements for the 2022 to 2023 tax year, will require changes to HM Revenue and Custom’s IT systems. There will also be extra staff costs supporting customers and ensuring compliance with the new system. Those costs are currently being quantified.
4.11 Other impacts
Other impacts have been considered and none have been identified.
4.12 Monitoring and evaluation
The measure will be monitored through information collected from National Insurance and Levy receipts.
4.13 Further advice
If you have any questions about this change, please contact the National Insurance contributions Policy Team at email@example.com.
Rt Hon Jesse Norman MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.