A health and social care tax is announced

07 September 2021 - Jason Fayers

The Prime Minister has announced a new health and social care tax will be introduced across the UK in April 2022 to pay for reforms to the care sector and NHS funding in England.

In a statement to the Commons, Boris Johnson accepted that the tax rise will break a manifesto pledge, but he said the “global pandemic was in no one’s manifesto”. The money raised from the health and social care levy will, he said, provide £36bn for frontline services in the next three years and be the “biggest catch-up programme in the NHS’ history”.

The monies raised from the levy will be used to tackle NHS waiting lists with the goal of clearing them within three years through an extra nine million checks, scans and procedures. There will also be an £86,000 cap on individuals’ lifetime social care costs, a boost for carers’ training and money for councils to end the practice of wealthier care residents paying more and subsidising those residents funded by the state.

How will it affect my income?
The 1.25% rise in National Insurance is the largest rise in personal tax for years. Taxpayers will see the exact amount that they are paying on their wage slip, and an average basic rate tax payer earning £25,000 will contribute an extra £3.71 a week or £193 per year. A higher rate tax payer with a salary of £75,000 will pay £818 more each year as a result of the new tax.

When will it take effect?
The tax will begin as a 1.25% rise in National Insurance (NI) from April 2022 paid by both employers and workers, and will then become a separate tax on earned income from 2023. It will be calculated in the same way as NI and will appear as a separate line on an employee’s payslip.

Tax increase for shareholders
Shareholders who have the ability to extract funds from their personal companies by way of dividends are also caught by the new rules as there will be a 1.25% increase in both the basic and higher tax rates applicable to dividends.

A major change for working pensioners
In what is understood to be a last minute addition to the statement, Boris Johnson also announced that for the first time more than 1.2 million working pensioners, who do not currently pay National Insurance, will also be expected to pay the new levy from April 2023.

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