The Health and Social Care Levy: A New Tax
Once fully implemented, the new health and social care levy will amount to an additional tax to fund the government’s ambitious reforms of the health and social care sector. The levy is a new and permanent tax which will help meet what the government has called a “permanent increase in spending” on health and social care.
The government’s reform programme has been set out across number of publications in recent times, most recently its policy paper this month (January 2022), Build Back Better: Our Plan for Health and Social Care; and a few weeks earlier in December, a 10-year ‘vision’ to improve adult social care was published – along with a policy paper on the new health and social care levy.
The proposed reforms are intended to provide greater financial protection and choice for those receiving social care – both in residential settings and those remaining at home. A key element is the promise that no one will be forced to sell their own home to fund their care. But promises like this do not come free.
How’s it to be funded?
As politicians are keen to remind us, ‘money does not grow on trees’; so how are these far-reaching reforms to be funded? By members of the public of course: the £1bn reforms will be funded via a health and social care levy set at 1.25%.
The levy will be payable by employers and employees; as well as the self-employed who are liable to pay National Insurance contributions (NIC). It will also be payable by individuals who would be liable to pay NIC were it not for pension age restrictions.
The levy will be administered by HMRC in the same way as NIC are currently.
For those liable, there will be a transitional temporary 1.25% increase applicable to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NIC for tax year 2022 to 2023. Those who only pay Class 2 and Class 3 NIC will not be affected.
From April 2023, the NIC increase will be removed and replaced by the new health and social care levy at a rate of 1.25% (subject to the usual reliefs and thresholds).
What does this mean?
As the cost of living increases, the additional levy will add to the financial pressures on individuals and their families in the near future.
On a practical note, the IT systems at HMRC will need to be adapted to take into account the changes. Businesses need to factor in the cost of the new levy if they haven’t already done so.
If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you