Don’t risk HMRC fines.
In early September, UK Prime Minister Boris Johnson announced a new tax: the health and social care levy. It’s designed to fund social care in England and to promote the post-COVID recovery of the NHS. They expect it to raise roughly £12 billion per year. The initial change will come into force on 6th April 2022 – the start of the 2022/23 tax year.
Here’s what’s happening 👇
It will affect three groups:
Through the tax, you’ll pay more national insurance. At the moment, national insurance is paid depending on your earnings and employment status:
|Class of National Insurance||Who pays?|
|Class 1||Employees who are under state pension age and earning >£184 per week|
|Class 2||Self-employed earning >£6,515 per year|
|Class 4||Self-employed earning >£9,568 per year|
We pay national insurance to qualify for state-provided benefits (like the state pension, JSA, the NHS etc.). But with the levy, everyone will pay an extra 1.25% on their national insurance rate from April 2022. Then from 6th April 2023, our national insurance will go back to its normal rates and the Health and Social Care Levy will be officially introduced as a separate tax. It will affect not only employees, employers and the self-employed but those above state pension age, unlike National Insurance.
In addition to this, employers will also see a rise in the National Insurance they pay to employ people. They’ll pay an extra 1.25% on their current rates bringing the total from employers and employees to 2.5%.
You’ll see the new tax appear on your payslip or tax return along with income tax and national insurance.
Boris also announced that there would be a rise in the tax on dividends. Currently, you can earn up to £2,000 in dividends tax-free. From there, you’re taxed at the following rates:
|Annual salary||Tax bracket||Tax rate|
|Up to £12,570||Personal allowance||0%|
|£12,571 – £50,270||Basic rate||7.5%|
|£50,271 – £150,000||Higher rate||32.5%|
But with the new levy, an extra 1.25% will be added.
First and foremost, who wants to pay more tax? No one. But this levy goes further than the usual backlash against tax hikes. In 2019, one of Boris Johnson’s election promises was not to raise national insurance. As a result of COVID and the strain on the NHS, this has changed.
In addition to this, there are fears that this tax will more heavily impact those on lower incomes.
But fundamentally, the biggest controversy is that over 65s who are in work will also have to pay the Health and Social Care Levy. Currently you don’t have to pay national insurance after reaching state pension age. This will be a new cost on your earnings.
To find out how you’ll be affected by the tax hike, use our national insurance calculator. Select the year 2022/23 to see what you’ll be taxed once the change takes place.
When you’re self-employed, you have to pay your income tax and national insurance contributions yourself in your annual Self Assessment. Our calculator helps you quickly assess how much you owe.
However you may be eligible for a tax refund when:
In your case when you earn £50,000:
You pay no income tax on first £12,570 that you make
You pay £7,286 at basic income tax rate (20%) on the next £36,430
No contributions on the first £9,568 that you make
You pay £3,549 in contributions (at 9%) on the next £39,432 that you make
You pay £159 in NI Class 2 contributions
From November 2022, new National Insurance rates and thresholds have been introduced. For Class 2 the threshold is now £11,908, which will increase to £12,570 in April 2023. Class 4 contributions have decreased to 9% for earnings over £12,570 and 2% for earnings over £50,271. Class 1 contributions have decreased to 12% (from 13.25%) and 2% (from 3.25%).
If you have any concerns about how this might affect you and you need some tax advice from an expert, check out our tax advice service. Book a consultation with one of our accountants and get all your questions answered.
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