The information in this article was correct at the time of writing. However, it is possible that existing details will evolve or that new details will emerge as a result of the Chancellor’s Spring Statement, which is due on Wednesday 23 March. We will issue up to date information, should anything change, in the days that follow, so you may wish to subscribe to our emails here.
At the 2021 Autumn Budget, the Government announced that a 1.25% Health and Social Care (HSC) levy charge would be brought in for the 2022/23 tax year.
From 6th April 2022 National Insurance Contributions (NIC) for employers and employees will increase.
From the 6th April 2023 The National Insurance contribution rates will go back down to previous levels, and the levy will become a separate new tax.
The increase represents a cost to employers and employees, and is something both parties should give some thought to and prepare for.
How will the HSC levy affect employers?
If your business is liable to pay Class 1, Class 1A or Class 1B National Insurance contributions, these amounts will increase by 1.25 percentage points from 6th April 2022.
From the 6th April 2023, NI rates will return to the previous percentages (where these remain unchanged) and the 1.25% charge will be an entirely distinct deduction.
| Tax Year | Employee Class 1 NICs | Employer Class 1, 1A & 1B NICs | Self Employed Class 4 NICs |
| 2021/22 | 12% / 2% | 13.8% | 9% / 2% |
| 2022/23 | 13.25% / 3.25% | 15.05% | 10.25% |
| 2023/24 | 12% / 2% | 13.8% | 9% / 2% |
| H&SC Levy | Employee | Employer | Self Employed |
| 2023/24 | 1.25% | 1.25% | 1.25% |
The HSC levy will also be payable from 6th April 2023 by employees and employers, where the employee is over state pension and earning more than the primary threshold (Class 1).
The HSC levy, as with NI contributions, will be collected via existing PAYE and Self-Assessment systems.
Whilst meant for good, the creation of the levy and the uplift in contributions could leave many employers with significantly less money available to spend – whether that be investment in recruitment itself, or the wider business. This could see lower salaries and cuts to remuneration packages, or an inability to recruit altogether.
There are, of course, changes that employers can make to mitigate the impact of the increased cost; for example, reviewing salary sacrifice arrangements, and considering other employment benefits as alternatives to pay rises.
Employers would be wise to undertake planning and cash flow forecasting, to better understand the impact that the new levy will have on their organisation.
Employers reliefs and allowances
There are certain reliefs in place for employers making NI contributions, which will continue to apply after the NI increase and levy are brought into effect. For example, zero-rate NI applies where you employ:
- Individuals aged under 21
- Apprentices aged under 25
- Armed forces veterans
Importantly, employers that are entitled to the £4,000 Employment Allowance can offset this against their Employers Class 1 National Insurance liabilities for 2022/23, including the amount resulting from the increase. However it is not yet clear whether this will be allowed when the levy becomes a separate tax.
Benefits in Kind
The increase in contributions will also apply to Class 1A NI, paid on any Benefits in Kind provided to employees, and to Class 1B NI which are paid on PAYE Settlement Agreements (PSA).
Payslip Requirements
In an attempt to ensure that employees understand why their NI contributions have increased and where the additional deductions are going, HMRC are asking employers, where appropriate, to include the following message on payslips for the 2022/23 tax year.
“1.25% uplift in NICs funds NHS, health & social care”
Some payroll software will accommodate this automatically, whereas others may not and, instead, this will need to be manually added any payslips produced.
Importantly, on reading the HMRC information for employees, the guidance instructs employees to check their payslips and ensure the wording is shown clearly on the payslip.
It will be the responsibility of employers to ensure that this wording is incorporated and employees will be encouraged to check that the wording is clearly displayed on any payslips they receive so, if you are in any doubt about meeting this requirement, you should speak to your payroll software provider or your payroll bureau, to confirm how this will be accommodated.
From April 2023, the levy must be reported on the payroll and clearly shown on payslips as a separate 1.25% tax charge for employees that are required to pay it.
Get preparations underway
Taking prompt action, prior to 6 April 2022, to understand the ramifications of the increases for your business, should help you to be able to determine what steps you can take to successfully navigate the change and accommodate any impact on your cash flow, employees, existing contractual arrangements and future plans.
You may also wish to communicate with your employees and help them to understand about this change before the start of the new tax year. The better awareness of this, the less queries you are likely to receive from employees in April.
How can GH Payscheme help?
Our team of payroll professionals, who support employers across Bedfordshire, Cambridgeshire, Hertfordshire and throughout the UK, can help you to ensure that your payroll remains compliant at all times.
We can assist you with calculating NI contributions, ensuring that deductions are always accurate, and we will ensure that any payslips produced by us incorporate the correct messaging, as advised by Government.
Crucially, for our payroll clients, we can also help you to answer any queries you receive from your employees and provide you with resources to spread awareness of this upcoming change.
Beyond processing your payrolls in line with latest legislation, we can call on the wider team at George Hay, comprising tax advisers, chartered accountants and business advisers, to assist you with cash flow forecasting, planning and understanding the tax implications associated with the changes and any adaptations you make to your business as a result.
To speak to one of the team about getting your payroll function ready for April 2022, contact us today on 01767 315010 or fill in our online enquiry form.
