New social care tax and what it means for you
The UK government has announced a new tax to pay for social care costs. We’ve taken some time to analyse the announcements so far and wanted to share them with you.
What has been announced?
A new tax has been announced to increase National Insurance contributions and tax on dividends by 1.25 percentage points from April 2022. Even individuals above the State Pension age will be affected by this tax increase. The National Insurance increase will apply to employers, the employed, and self-employed people.
For the tax year from April 2022, the new tax will be captured under National Insurance. From April 2023 onwards, a new ‘Health and Social Care Levy’ will be introduced and displayed on payslips as a separate line item.
How will this affect individuals and businesses?
Salary
Anyone who earns more than £9,568 per year in salary payments will have their take-home pay reduced from 2022 onwards. Here are some salary examples:
| Annual Gross Salary | Current NI per year | Additional levy per year | How much does their net pay decrease per month? |
| £20,000 | £1,251 | £130 | £11 |
| £30,000 | £2,451 | £255 | £21 |
| £50,000 | £4,851 | £505 | £42 |
| £80,000 | £5,479 | £880 | £73 |
| £100,000 | £5,878 | £1,130 | £94 |
Employers
Employers’ national insurance will increase by 1.25% too. Please note that the Employment Allowance of £4,000 still applies for those businesses that qualify.
Self Employed
For anyone who is self-employed, who has profits of more than £9,569 per year will pay additional Class 4 National Insurance Contributions. Examples are:
| Annual Profits | Current NI per year | Additional Levy per year |
| £10,000 | £39 | £5 |
| £20,000 | £939 | £130 |
| £30,000 | £1,839 | £255 |
| £50,000 | £3,639 | £505 |
| £60,000 | £3,858 | £630 |
Dividends
Your dividend income will also be affected (if your total income from all sources is greater than £14,570). The £2,000 Dividend Allowance will still apply. Here are the new rates:
| Tax Band | Current Dividend Tax | New tax rate with 1.25% Levy |
| Basic rate – £12,571 to £50,270 | 7.50% | 8.75% |
| Higher rate band – £50,271 to £150,000 | 32.50% | 33.75% |
| Additional rate band – over £150,000 | 38.10% | 39.35% |
Example:
If you receive £9,000 from a salary and £35,000 from dividend income.
Current tax paid:
- Income tax – £2,207
- Net pay – £41,793
With the additional Levy:
- Income tax – £2,575
- Net pay – £41,425
How we can help
If you’d like us to create a worked example of how these changes will affect you personally, please get in touch. Our personal financial planners are also available if you would like to chat through any financial plans for you, your business, or your loved ones you think this could impact.
