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The Government recently announced that, from April 2022, a UK-wide, 1.25% Health and Social Care Levy will come into place on earned income for employees, the self-employed and employers, with dividend tax rates also rising by the same amount. What’s more, changes are planned for the total amount of savings that can be retained when a person moves into care, as well as a limit on the total cost liability for any individual that has to pay for their care home accommodation and care. It’s set to be a big change for many.

What’s the reason for the social care levy?

The intention of this increased taxation by the Government is to raise an additional £12bn a year – almost half of which (£5.5bn) has reportedly been allocated to social care, with the remainder helping the NHS to deal with the huge amount of delayed operations and procedures resulting from the turmoil caused by the COVID-19 pandemic.

The intention of the levy was laid out in a speech to parliament by prime minister Boris Johnson, who stated: ”We need reform and change; we need to build back better … our new levy will share the cost between individuals and businesses, and everyone will contribute according to their means, including those above state pension age, so those who earn more will pay more.”

How will it affect me?

The new measure is anticipated to have a sizeable macroeconomic impact; it will affect earnings, inflation and company profits, and will likely also call into question whether newly-formed businesses should incorporate or not. The financial impact of the social care levy will be felt across the country: a person earning an annual salary of £24,000 will soon pay an extra £260 a year in tax to cover the levy, while a higher rate taxpayer earning £67,100 would pay an additional £715 annually. For company directors drawing a regular dividend from their businesses, a sizeable shift will be felt too: the current dividend tax of 7.5% is set to rise to 8.75%, with the intention of raising an estimated £600m.

Is anyone exempt from the levy?

The Government’s intention with introducing the new social care levy is that the highest earners will pay the majority; it’s estimated that the highest earning 14% of the UK population will pay around half of the total revenues, while no-one earning less than £9,568 per year will pay the levy: it will only be paid by employed and self-employed individuals earning above the Primary Threshold and Lower Profits Limit. It’s also anticipated that many small businesses will be exempt from this new levy. Existing NICs reliefs to support employers will apply to the levy, while companies employing apprentices under the age of 25, as well as people under 21, veterans and employers in freeports will not pay the levy, as long as gross earnings are under £50,270, or £25,000 for new freeport employees.

What do employers need to know?

This change is on the way for more than 1.6 million employers across the UK. Those affected by the introduction of the new Health and Social Care Levy will need to familiarise themselves with the workings of the new levy, update employee payroll records and may also have to update their software in readiness for this change. If you’re concerned about what the new levy may mean for your business and need some professional advice, book an appointment today with our friendly team and we’ll help guide you through this important change to your company’s operations.

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