A Brand New Tax?

Today, Boris Johnson announced the long anticipated new levy to help the crisis in the healthcare service. The aim is to raise an additional £12bn per year and this will be done by two separate taxes.

Dividend tax rates are set to increase by 1.25% and will be legislated for in the upcoming finance bill. Details will no doubt become more clear when the budget papers are available, but this is surely the start of a wider plan to deal with the large increase in spending during the Coronavirus pandemic.

The headline-grabbing news was a new tax – the health and social care levy – which looks and smells very much like National Insurance Contributions (NICs). So much so that it will be treated as NICs until HMRC’s systems are sufficiently updated to deal with it separately.

National Insurance Contributions will rise by 1.25% for employers, employees and the self-employed from April 2022. When the legislation has been put in place to distinguish the levy from NICs (April 2023), this new levy will also apply to those working past the State retirement age. Because the levy applies to employers and employees, the total cost of employing staff will effectively increase by 2.5% since both employer and employee will bear an additional 1.25% tax.

We will be looking at the detail of the tax changes as they become available – please get in touch if you would like to discuss how this may affect you.