The Health and Social Care Levy

health and social care levy - healthcare image

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The Health and Social Care Levy was announced last week as a solution to the need for increased funding of the NHS and social care.
A reform of the care system has long been on the cards, with the need to increase funding and change how care is paid for in part to cater for an aging population. The backlog of treatments and operations in the NHS has further exasperated this situation, with the prospect of tax rises now inevitable. The Health and Social Care Levy is in direct response to this need, effectively creating a new form of income tax.

The health sector is facing an unprecedented challenge

  • 90 Million lifesaving Vaccines have been secured in the UK
  • 5.5 Million people are waiting for medical treatment
  • Treatment times have increased from 24 weeks to 45 weeks
  • One in seven people pay more than £100,000 for their care
  • What is the Health and Social Care Levy?

    The funding boost for the health care sector is being funded primarily through an increase in National Insurance contributions, for both employers and employees.

  • National Insurance Rates will rise by 1.25% for employers and employees earning over £8,840
  • National Insurance Rates will rise by 1.25% on classes 1 and 4 for the self-employed earning over £9,568
  • Dividend tax rates on profits from share ownership will also increase by 1.25%
    • The £2,000 dividend allowance will remain
    • Basic Rate Basic Rate Taxpayers will rise from 7.5% to £8.75%
    • Higher Rate Taxpayers will rise from 32.5% to £33.75%
    • Additional Rate Taxpayers will rise from 38.1% to £39.35%

    From April 2023 onwards, National Insurance contributions rates will revert to 2021 to 2022 tax year levels and will be replaced by a new 1.25% Health and Social Care Levy. This income will be ringfenced to support UK health and social care bodies and cannot be used by the government for any other purposes.

    Anyone above State Pension age will not be affected by the temporary increase to National Insurance contributions for the 2022 to 2023 tax year but will be liable to pay the levy from April 2023.

    How much will the Health and Social Care Levy raise?

    The levy is projected to raise £12Billion per annum from 2022.

    The increase in dividend tax rates will be legislated for in the next Finance Bill and the government estimates that 70% of the revenue raised will be paid for by additional and higher rate taxpayers in 2022/23.

    The unexpected circumstances of the pandemic have meant that the government’s pledge to not increase taxes has been broken. If you look at the big picture it is completely understandable, the impact is that we are all going to be slightly worse off in the amount of income we will actually receive.

    How much will I pay for care?

    As with all government announcement the devil is in the detail and the rules are complicated. It would appear that anybody going in to social care after October 2023 will only pay a maximum of £86,000 regardless of their overall assets. This will benefit up to 40,000 people per year and the calculations aren’t means tested. You may think this is unfair but it often costs the taxpayer more to implement a means testing process rather than apply this change across the board, regardless of income or savings.

    Those with assets between £20,000 and £100,000 will have their care costs subsidised on a sliding scale.

    What does the levy mean for me?

    We will start paying the levy in April 2022 to start clearing the NHS backlog and it will only benefit people needing care after October 2023.

    This gives us over 2 years to understand the new rules, which may well evolve over time as the longer-term impacts of the Coronavirus Pandemic on the sector continue to be revealed.

    The government’s announcement means that we can plan for this additional tax contribution and its effect both on client’s incomes, but also how it changes social care costs which might be part of your longer term financial planning.

    As with any change in circumstances, we recommend speaking to your adviser should this policy change impact your situation.

    This content is for information purposes and should not be treated as advice.

    The tax treatment depends on your individual circumstances and may be subject to change in future. All rates of tax and tax reliefs are based upon our current understanding of them but may be subject to change in the future. We recommend you seek competent professional advice before taking any action. The Financial Conduct Authority does not regulate tax advice.

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