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The health and social care tax: explained

21st September 2021

health and social care tax

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 👇

Who’s affected?

It will affect three groups:

  • Employees (on PAYE)
  • Self-employed
  • Employers

What does the health and social care tax change?

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 InsuranceWho pays?
Class 1Employees who are under state pension age and earning >£184 per week
Class 1A/1BEmployers
Class 2Self-employed earning >£6,515 per year
Class 3Anyone
Class 4Self-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. 

A rise in tax on dividends

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 salaryTax bracketTax rate
Up to £12,570Personal allowance0%
£12,571 – £50,270Basic rate7.5%
£50,271 – £150,000Higher rate32.5%
£150,000+Additional rate38.1%

But with the new levy, an extra 1.25% will be added. 

Why are people unhappy?

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.

How much more will I pay?

  • £20,000 income = will be taxed an extra £130 per year
  • £50,000 = will be taxed an extra £505 per year
  • £100,000 = will be taxed an extra £1,130 per year

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.

How much will Boris’s new tax cost me?

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. 

Annual self-employment income
Self-employment expenses
Select tax year
Income after tax
Income tax
Total income tax
£12,500 taxed at 0%
£36,500 taxed at 20% : £7,300
Total NI contributions
Class 2 NI: £159
Class 4 NI at 9% : £3,555
What you’re left with

Hey there! We really hope this calculator helped you. Tax matters can be a dreadful topic at times. We know. That’s why we started TaxScouts.
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How your income tax is calculated

As a self-employed you have to pay your income tax and national insurance contributions yourself during your annual self assessment. Our calculator helps you quickly assess how much payment is due.

However you may be eligible for a tax refund when:

  1. You already made tax payments for the year but your annual income ended up smaller than planned
  2. You have done things that qualify for tax relief (made private pension contributions, give to charity, etc)

In your case when you earn £49,000:

Income tax breakdown

You pay no income tax on first £12,500 that you make

You pay £7,300 at basic income tax rate (20%) on the next £36,500

Need a hand?

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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