Health and social care levy impact

Phased implementation

It’s disappointing for employers that HMRC’s IT partners are unable to introduce the health and social care levy (HSCL) from April 2022 which means that business and the payroll software industry will have two years of change to accommodate. From April 2022 all rates of NI will increase by 1.25%. From April 2023 this increase will be removed and instead the HSCL of 1.25% will be introduced as a new tax, constructed in the same way as NI we believe, but with those who are working but over state pension age having to pay the HSCL, even though they are currently exempt from NI.

Employer costs 

It has emerged that all employment-based classes of NI will increase from April 2022, so this means that Class 1A on benefits and expenses and termination payments in excess of £30,000, and Class 1B on PAYE settlement agreements will also increase to 15.05%. Employers will want to ensure that finance teams have taken this into account when considering the cost impact of the NI increase/introduction of the HSCL.

HR teams which are considering the termination of senior employees may wish to conclude these by the end of March 2022 in order to avoid the increase in the NI charge for payments over £30,000.

Employee impacts

When tax and NI are considered there are some significant marginal rates for employees. Scottish taxpayers earning between £43,663 and £50,270 will have a combined tax and NI rate of 54.25%. Note, the thresholds may change slightly once the bands for 2022/23 are confirmed. Scottish taxpayers earning between £100,001 and £125,140 will have a combined rate of 64.75% (again, assuming that Scottish income tax rates and thresholds remain at the present levels in 2022/23). In 2022/23 Universal Credit (UC) claimants should have their benefit topped up to compensate for some of the loss of income resulting from the NI increase as UC is worked out after income tax and NI deductions are considered.