National Insurance and the New Health and Social Care Tax

The government recently announced an additional tax to fund social care in England which will also help the NHS to get back on its feet following COVID.

The new plans will see employees, employers and the self-employed paying 1.25p in the pound for National Insurance (NI) from April 2022. This will equate to an extra £130 for employees earning £20,000 per year, and £505 for those earning £50,000.

Then, from April 2023, National Insurance will return to its current rate, and the additional 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 continue to work. Those earning less than £9,564 per year which is under the threshold for NI will not have to pay the new levy.

What is National Insurance?

National Insurance is a tax on earnings paid by employees and employers, and on profits by the self-employed. It was introduced in 1911 to create a fund for workers who had lost their jobs or who required medical treatment. Now used to fund the NHS, state pension and benefits, the money is supposed to be ring-fenced for these purposes, although the government is allowed to borrow from the fund to pay for other projects.

There are concerns that the increase will impact upon the lower paid, as National Insurance becomes less and less of your wage packet the more you earn. Currently, workers pay NI at a rate of 12 per cent on earnings between £9,564 and £50,268, whilst anything above this rate attracts a rate of only 2 per cent. The same rate will apply to the Health and Social Care Levy.

Why is the government increasing National Insurance?

The government has said that the changes could raise £12 billion per year, which will initially help to ease the pressure on the NHS. Some of this will then be moved into the social care system over the next three years.

The aim is to help older people and those with high care needs with everyday tasks such as taking medication, eating, washing and dressing, and to ensure that they need not part with more than £86,000 in care costs from October 2023, excluding accommodation and food. In addition, those with assets such as property, savings or investments worth less than £20,000 will have their care fully covered by the state. Those with assets worth between £20,000 and £100,000 will have their care costs subsidised.

Currently, to qualify for local authority care, people must have very high care needs and also savings and assets worth less than £23,250 in England. Anyone with assets worth more than this amount will be forced to sell them to pay for their care. Only when their savings dwindle down to £14,250 will the council step in to cover the costs.

The care system is facing pressure due to an ageing population and the COVID-19 pandemic.

Looking for advice on National Insurance and Self-Employed or Company Taxation?

If you are in need of advice on any aspect of company or self-employed taxation or National Insurance, you are welcome to get in touch with the team here at Office Assistants.

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