1.25% Tax Hike to Cover Social Care Costs
Posted on 9th September 2021 at 13:32
MPs voted by 319 to 248 in favour of raising taxes to fund the NHS and social care
So what does this mean for you?
A new health and social care tax will be introduced across the UK to pay for reforms to the care sector and NHS funding in the UK.
Although it was originally floated as an increase in 'National Insurance Contributions' (NICs), it will now be ringfenced purely for health and social care costs. The levy will be paid by businesses and individuals, including the self employed, from April 2022, and this will be extended in April 2023 to workers who continue to work after state pension age. Legislation will be passed to ensure that the charge is an independent tax, discrete from NICs and it will take a year for HMRC to update its systems to accommodate the levy as a separate charge, as opposed to a NICs’ increase on payslips.
This means that people earning £24,000, less than the average wage, would pay an additional £260 a year for the levy, which will be clearly indicated as the social levy on pay slips. Anyone earning less than £9,680 will not have to pay the levy.
A typical higher rate taxpayer earning £67,100 will contribute £715. Additional rate taxpayers make up just 2% of individuals affected but will contribute nearly 20% of the revenue raised from individuals.
The dividend tax, which will see the current rate of 7.5% rise to 8.75%, and is expected to raise an estimated £600m; this will be legislated in the next Finance Bill. The government said that additional and higher rate taxpayers are expected to contribute over 70% of the revenue from this increase in 2022-23.
Boris Johnson said it would raise £12bn a year, An estimated £5.5bn of the levy will be allocated to social care, designed to tackle the health backlog and pressure on the NHS caused by the Covid pandemic and to bolster social care, increasing hospital capacity and creating space for nine million more appointments, scans and operations.
This will be paid by all working adults, including older workers, and the government says it will be "legally ring-fenced" to go only towards health and social care costs.
He accepted the tax broke a manifesto pledge, but said the "global pandemic was in no-one's manifesto".
The Institute for Fiscal Studies said the latest tax increases amounted to £14bn. Together with those announced in the March Budget, it said, 2022 had seen the highest tax rises in 40 years!
The UK-wide tax will be focused on funding health and social care in England, but Scotland, Wales and Northern Ireland will also receive an additional £2.2bn to spend on their services.
What’s the new Health and Social Care Tax and how will it affect me?
MPs have voted for an extra tax to fund social care in England - and help the NHS recover after the pandemic.
A new 1.25% tax on income and profits next year through National Insurance - and then as a separate tax from 2023
From April 2023, National Insurance will return to its current rate, and the extra tax will be collected as a new Health and Social Care Levy.
This levy - unlike National Insurance - will also be paid by state pensioners who are still working. ‘Our new levy will share the cost between individuals and businesses, and everyone will contribute according to their means, including those above state pension age, so those who earn more will pay more,’ said Johnson.
Income tax is not paid by businesses so the whole burden would rest on individuals. The new levy will fall on businesses and individuals. And the highest earners will pay the majority.
And because we are also increasing dividends tax rates we will be asking 'better-off business owners and investors' to make a fair contribution too.
Boris stressed that the highest earning 14% will pay around half the revenues, no-one earning less than £9,568 will pay the levy, and the majority of small businesses will be exempt, with 40 per cent of all businesses paying nothing at all.
This will raise an estimated £12bn a year, with money from the levy going directly to health and social care across the whole of the UK.
Existing NICs reliefs to support employers will apply to the Levy. Companies employing apprentices under the age of 25, all people under the age of 21, veterans and employers in freeports will not pay the levy for these employees as long as their yearly gross earnings are less than £50,270, or £25,000 for new freeport employees.
A cap will be introduced on care costs in England from October 2023 of £86,000 over a person's lifetime.
All people with assets worth less than £20,000 will then have their care fully covered by the state, and those who have between £20,000 and £100,000 in assets will see their care costs subsidised.
Care Cost Cap
There will also be wide-ranging changes to the costs paid by people facing residential care. The PM set out plans for a limit on what people can be expected to pay. From April 2023, no-one starting care will have to pay more than £86,000 towards their care.
Currently, anyone in England with assets over £23,250 must pay for their care in full.
The savings limit will also be increased to £20,000 from the current £14,000, which means that they will not have to make any contribution to care costs.
Meanwhile anyone with assets between £20,000 and £100,000 will be eligible for some means-tested support. This new upper capital limit of £100,000 is more than four times the current limit. However, if a person’s total assets are over £100,000, full fees must be paid.
The supporting document primarily sets out ongoing issues with NHS backlogs and plans to address this, but also gives brief details on how the new asset limits will work.
When these reforms are implemented, around 150,000 people will directly benefit at any one point in time.
A white paper on integrated health and social care will be released later this year setting out more detailed plans.
Source: Sara White, Editor, Accountancy Daily (Croner-I)
Sara White, Editor, Accountancy Daily (Croner-I)
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