Health and Social Care Levy: How much will we pay?
Boris Johnson announced yesterday that the funding of the Health and Social Care reform is to be paid by an increase in both national insurance and dividend tax by 1.25% from April 2022.
Under the new changes, people in England will pay a maximum of £86,000 of social care from October 2023, with the rest being subsidised by the government. This is a scheme introduced to help older people with high care needs.
N.B.
Social care costs do NOT include food and accommodation. These will still have to be paid for by the individual.
Those with assets (such as your home) less than £20,000 will have their care fully subsidised by the state, and those with assets between £20,000 and £100,000 can expect to pay a “sliding scale” contribution toward the £86,000 of social care.
National Insurance
Updated 28/03/2022
From April 2022, national insurance will increase by 1.25%. This increase will apply to Class 1 (employees and employers) and Class 4 (self-employed).
However, it is very important to note that from April 2023, national insurance rates will drop back down to their current rate and the Health and Social Care Levy will replace this to make up the shortfall. This new levy will impact the employed and self-employed, including those over the pension age with earned income (not pension income).
The Health and Social Care Levy is a new type of national insurance, and you will likely see it as a separate line on your payslip.
To that end, the average worker in the UK can expect to contribute around £5 per week (£255 a year).
The BBC have created at graph that shows you how people will be impacted at different salary intervals.
Dividends
The changes will mainly impact company directors, who often pay themselves dividends in addition to a salary.
The dividend tax is set to rise to 8.75%, 33.75%, and 39.35% to the basic rate, higher rate and additional rate bands respectively.
Of course, the changes will not impact on those who have investments held in an ISA.
N.B.
The £2,000 tax free dividend allowance will remain in place.
Interestingly, the tax on interest received and capital gains has remained the same, meaning that those who work for a living are proportionally impacted the most by the new changes.
