There is a 1900 year old Jewish commentary that suggests the Jewish New Year is a day of reckoning for a King’s debts. So perhaps it is no coincidence that on 7th September, the 2021/22 Jewish New Year, the Prime Minister Boris Johnson announced his plan for dealing with the current Social Care debt.
Under the Government’s ongoing strategy of ‘Build Back Better’, the plan for funding health and social care includes the manifesto breaking increase in National Insurance.
We await full legislative details on this tax rise announcement, but one thing looks clear: Everyone will pay!
In the run up to the announcement, speculation had been centered on whether the increase would be above or below 1%. The announcement confirmed it would be 1.25%. However, perhaps to give a strict interpretation, this is not actually an increase in National Insurance. The document actually refers to a new Health and Social Care Levy along the lines of National Insurance, but ring-fenced to provide direct finance for that end. Indeed, although this additional charge starts from April 2022, from April 2023 this will be separated from National Insurance i.e. those rates should return to what they are now. The delay of a year is apparently to give HMRC time to sort their systems out!
Understanding that this is a new levy, as opposed to simply a rise in National Insurance itself, then begins to explain why its application is much wider than just a National Insurance increase. Hence why, everybody pays.
- Employers – were always the expected target and the 1.25% will be applied to the secondary Class 1 contributions, currently 13.8%;
- Employees – similarly, the rates for primary contributions for employees will increase from the current 12% and 2% bands, the latter applying to income over the £50k Upper Earnings Limit.
- Pensioners – perhaps surprisingly some people over the pensionable age will also need to pay this new levy if they are still in employment. This, however, will only be from April 2023.
- Self-employed – the rate of Class 4 NIC will also increase from the current 9% and 2%, again the latter applying to profit over £50k, this also covering individual partners in all partnerships.
- Business owners – perhaps less expected, precisely because NIC does not normally apply, the proposals set out that tax on dividends will also be increased by the levy. This should apply to all three current rates of dividend tax, 7.5%, 32.5% and 38.1%.
Whilst the Government’s logic of everybody pays therefore encompasses business owners, nonetheless this perhaps remains a surprising addition. At a time when many businesses are still struggling to survive, let alone make a profit, and those in the travel and hospitality industries will be doubly hit by the withdrawal of the furlough scheme and the VAT rise from 1 October, dividends may not even be a realistic prospect and is therefore more likely to impact on those who receive dividends from investments. And it’s not too long before there may be other tax surprises, with the announcement that the Autumn Budget will take place on 27 October.
Should you have any questions or require more information, please contact the Elman Wall Tax Team at TaxTeam@elmanwall.co.uk