What is it?
The Health & Social Care levy will see an increase in National Insurance contributions on the 6th April 2022 to help fund health and social care and allow the NHS to recover after the pandemic.
There will be an increase of 1.25% in insurance contributions in Class 1, 1A and 1B National Insurance Contribution (NIC) rates to 15.05% for employers and in Class 1 NIC rates for employees to 13.25%. The self-employed will see the same increase to their Class 4 contributions.
This is expected to raise £12 billion per year. Initially this will help ease the pressure on the NHS but a proportion will then be moved to the social care system.
On April 6th 2023, the National Insurance rates will return to current levels, but the deductions will instead appear as a new item on payslips, referred to as the ‘Health and Social Care Levy’.
What are the effects going to be?
These increase are going to affect workers and businesses alike. Workers will earn less whilst employers will see additional cost considerations to their budgeted staffing costs.
For workers as an example, there will be a net reduction in the net pay they receive. The amount will vary depending on annual income, but will vary from circa £89 to over £1000 according to Gov.uk. Here, we identify the effects for each key group:
As an employee
As an employee, the National Insurance rate will be increasing to 13.25%, up from 12%. As a result, everyone’s net pay will decrease slightly and employees will earn less over the year. For higher earners, this could be over £1000 per year.
As a self-employed worker
The 1.25% increase will apply to self-employed workers too. This will be paid through the self-assessment tax return and therefore the self-employed will see a similar net decrease in their annual income.
As an employer
Employers will see their staffing costs increase significantly; Employer’s National Insurance Contributions will increase to 15.05% from 13.8%. For small and large businesses alike, these are significant costs to manage, especially as the levy was quick to be implemented and couldn’t have been effectively budgeted for over the long term.
As a recruitment agency, you will need to consider reviewing your charge rates and costs associated with any temporary workforce.
AWR considerations
The resulting increase in the Employer’s NI to 15.05%, from 13.8%, could have a direct impact on ensuring umbrella employees receive equal pay to their permanent comparators under the AWR.
Should the contract rate for the assignment remain the same into the new financial year, it will result in a reduction of the worker’s taxable pay as the umbrella company first deduct their employment costs which includes the increase in Employer’s NI. This could compromise equal pay in some scenarios where the current contract rate has been benchmarked against a permanent comparator.
As such, we urge you to check the current arrangements of each assignment, to ensure equal pay will remain beyond 6th April 2022.
Should you have further questions about how this new levy will impact you, feel free to ring our team on 01305 233170.
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