Overview

Understanding the temporary increases to National Insurance contribution and Dividend rates for the 2022 to 2023 tax year.

The Health and Social Care Levy

The Government has announced national insurance and dividend tax rate increases from 2022 to finance adult social care through tax changes and to modernise the social care system. Much of the money being raised will finance the NHS to catch up with elective surgery and other appointments delayed due to COVID. While the financing plan is UK-wide, the actual implementation of health and social care is run by each UK nation.

How will it be paid?

From April 2022, national insurance contributions for employees, employers and the self-employed will rise by 1.25%, and there will be the same rise in dividends tax.

From April 2023, while the rises will stay the same, the tax rise will be rebranded as a health and social care levy, which will appear separately on people’s tax records.

What will it be spent on?

Over the next three years, the tax rise will give an additional £12bn a year for health and social care.

The combined £36bn spend broken down;

£5.4bn over the three years will be spent on social care in England, £500m of this will be for training
£16bn on direct NHS England Funding
£8.9bn on a “health-based COVID response”
£5.7bn to devolved nations to cover health & social care
It is not clear what proportion will be allocated to social care once the first three years are up.

What will you have to pay for your social care?

Anyone with assets worth more than £23,250 currently has to pay for their social care in England and there is no cap on these costs.

Under the new system, anyone with assets below £20,000 will not have to use these assets to pay for care but may have to make a contribution from their income. People in the £20,000 to £100,000 asset bracket will have to contribute on a sliding scale system.

However, the people this applies to will not contribute more than 20% of their assets each year, and once their assets are worth less than £20,000, they would pay nothing more, although they might still contribute from any income.

Those with assets above £100,000 must meet all fees until their assets fall below £100,000. There is a maximum payment towards care of £86,000.

How much will the higher NI rates cost?

To put things into perspective, according to Downing Street figures, someone earning £24,100 a year would pay an extra £180 a year, and a person on £67,100 would pay £715 more yearly.

Those earning less than the threshold for national insurance (£9,500), will still pay nothing. Although people above the state pension age who still work do not normally pay national insurance, once the rise is rebranded as a health and social care levy from 2023, they will pay this.

Please view the next chapter for detailed worked examples of increases to employee contributions and dividends.