When Prime Minister Boris Johnson announced a UK-wide 1.25%
health and social care levy to be added on to both employer and employee
National Insurance contributions in April 2022, he caused quite a stir.
Johnson confirmed a £12bn annual tax rise to fund health and
social care spending, adding that the increase would share the cost “as fairly
as possible” between individuals and businesses after saying that the
government was “taking the tough decisions that the country wants to see”.
What is National Insurance?
It’s a tax on earnings paid by both employees and employers
with the self-employed paying it on profits of £6,515 or more a year.
Introduced by the National Insurance Act 1911 and expanded
by the Labour government in 1948, it acts as a form of social security, since
payment establishes entitlement to certain state benefits for workers and their
It is automatically deducted from workers’ pay packets via
the pay as you earn (PAYE) tax code and goes straight to HM Revenues and
What impact will the hike have?
The PM claimed that the highest earning 14% of the
population would pay around half of the revenue raised and that most small
businesses would be protected. Indeed, 40 per cent are expected to pay nothing
extra at all.
According to People Management, a snap poll by the CIPD
found that 74 per cent of respondents said there would be an increase in their
organisations’ costs following the health and social care levy. Only 2 per cent
said there would be no increase.
Several have warned that the increase will hamper the
economic recovery while others suggested that it would de-incentivise bosses
from hiring new members of staff.
Reacting to the proposed increases, Suren Thiru, Head of
Economics at the British Chambers of Commerce, said: “Businesses strongly
oppose a rise in National Insurance contributions as it will be a drag anchor
on jobs growth at an absolutely crucial time. Firms have been hammered by 18
months of covid related restrictions and have built up huge debt burdens.
“This rise will impact the wider economic recovery by
landing significant costs on firms when they are already facing a raft of new
costs pressures and dampen the entrepreneurial spirit needed to drive the
There are currently shortages of staff in several
sectors, so will this hike further hurt businesses’ plans to add much needed
Johnson did reveal in a press conference following the
address that he did not think the tax would have an impact and the recovery,
although some businesses have expressed a concern about how the increase in
contributions might have an adverse effect.
The news of a rise in tax is not good timing with the
furlough scheme due to come to an end on September 30, meaning that the
recovery is unlikely to get any easier unless further support is introduced.
While employers will be hit, employees will no doubt be
counting the cost too, right?
Anyone in work aged 16 or over who earns more than £184 a week
must pay National Insurance unless they are over retirement age.
Those who receive salaries under £9,564 won't have to pay
the levy or National Insurance.
This is how much a 1.25% rise will hit your employees if they
- £20,000 per year - £130 extra in tax a year
- £30,000 per year - £255 extra in tax a year
- £50,000 per year - £505 extra in tax a year
- £80,000 per year - £880 extra in tax a year
- £100,000 per year - £1,130 extra in tax a year
When will all this happen?
The rise will start in April 2022 for working people. From
April 2023, the government says it will appear on payslips as a separate Health
and Social Care Levy and apply to workers who are over pension age, which, as
mentioned earlier, National Insurance contributions do not.
How can you be ready for the changes?
It’s important to be aware that low earners, young people at
the bottom of the pay structure and those above pension age but still working
would likely bear the brunt of the new levy.
To support them it is important to look at the effect the NI
increase will have on their earnings and make sure that any real hardship cases
are looked at and addressed.
On top of that, be mindful of the effect it will have on
every member of staff’s wages going forward and whether that could have a big
impact on them.
Make sure staff are aware of the pay rise in advance and use
the calculator for working out your PAYE tax and National Insurance contributions.