National Insurance contributions update - Government Plan for Health & Social Care

Update 23/09/2022: The Health and Social Care Levy will no longer go ahead. From 6 November 2022, the temporary 1.25 percentage point increase in National Insurance rates is being reversed for the rest of the financial year. The introduction of a separate Health and Social Care Levy tax in April 2023 has been cancelled.

From April 2022, National Insurance contributions (NICs) for employees and employers will rise by 1.25%, as part of a new annual £12bn healthcare levy announced by Prime Minister, Boris Johnson. 

The purpose of the new levy is to generate a £36 billion investment (£12 billion per year) in health and social care to tackle NHS Covid backlogs, cut waiting times and reform the adult social care system.

All working adults including those over the state pension age, will pay the levy and the rates of dividend tax will also increase by 1.25% to help fund this package. Those who earn more pay more, with the highest earning 14% of people paying around half the revenues.

From 2023, the additional payment will become a separate tax on earned income called the Health and Social Care Levy, which will be calculated in the same way as National Insurance and detailed on payslips.

What does this mean for my business?

The Levy will apply in the same way as Class 1 (Employee, Employer) and Class 4 (Self-Employed, including partners) National Insurance, and to the main and higher rates. 

Many small businesses are protected. 70% of the money raised from businesses will come from the largest one per cent of businesses, while 40% of all businesses will pay nothing extra.

What about the self-employed?

The increase will not apply to Class 2 NICs (the flat rate paid by the Self-Employed with profits above the Small Profits Threshold, which is currently £6,515 per year) or Class 3 NICs (voluntary contributions for taxpayers to fill in gaps in their contributions’ records to qualify for benefits).

What about apprentices?

Existing NICs reliefs to support employers will apply to the Levy. Companies employing apprentices under the age of 25, all people under the age of 21, veterans and employers in Freeports will not pay the Levy for these employees as long as their yearly gross earnings are less than £50,270, or £25,000 for new Freeport employees.

What about the devolved nations?

The Levy will apply across the UK. Taken together, Scotland, Wales and Northern Ireland will benefit from an additional £2.2 billion each year on average as a result of the health and social care package. 

Health and Social Care Levy Rates 

 Existing NICs relief to support employers will apply to the Levy. 

The 2021-22 thresholds are used as an illustration; the Levy will apply to earnings/profits above the respective thresholds in future years.