Health and Social Care Levy
Anticipated by Cheylesmore Accountants in our previous article back in mid-July itself, the government has proceeded with a plan to legislate a new Health and Social Care Levy. The pandemic has led to the NHS coming under tremendous pressure which has delayed treatments for patients suffering from other ailments. It is also intended to improve the social care system in the UK.
The levy will formally come into effect from April 2022 in the form of a 1.25% hike in National Insurance (NI) contributions by employees and employers whilst the self employed will also contribute the additional rate on their profits as they currently pay NI on profits too. From April 2023, however, the NI rates will revert to normal, and a new tax will be introduced, termed the Health and Social Care Levy which will be 1.25%, effectively compensating the return to usual rates for NI.
Individuals with an annual salary or pay under the employee NI threshold of £9564 (or £797 a month) will not be liable to pay the levy either. As predicted by us, the new tax is expected to raise an additional £12 to £14 billion annually which is expected to be channelled to the NHS to ease the strain on the existing backlog of treatments as well as cope with new patients.
The rate of tax on dividends is also expected to increase by 1.25% which is likely to impact basic rate taxpayers disproportionately if one is to believe the tax clientele hypothesis. Under this hypothesis, basic rate taxpayers are likely to invest more heavily in dividend-yielding securities since they pay a lower rate of income tax whereas higher (and additional) rate taxpayers will invest more heavily in shares which generate capital gains since capital gains are taxed at 20% for taxpayers in the aforementioned bracket whereas income is taxed at 40% (45% for additional rate).
To stay up to date on the latest news and insights from the world of accounting, follow us on our social media channels and keep an eye out for our weekly blogs covering the recent developments on topics from tax to audit.
