What the new health and social care levy means for employers

Editor’s note: In the government’s mini-Budget on 23 September 2022, it was revealed that the health and social superintendency levy has been cancelled. Learn increasingly in our article: Mini-Budget 2022: What the announcements midpoint for your business.

In September 2021, the UK government spoken the health and social superintendency (HSC) levy.

As with any transpiration in taxation, the introduction of the levy provides an opportunity to empower and educate employees when it comes to salary payments so that they finger increasingly in control.

In this article, we highlight details of the new health and social superintendency levy, what it covers, what it ways for National Insurance contributions, and what it ways for you and your employees.

Here’s what we cover:

• What is the health and social superintendency levy?
• What does the health and social superintendency levy cover?
• 2022-2023: HSC levy’s increase in National Insurance contributions
• 2023 onwards: How to wield the HSC levy to wages
• The HSC levy’s impact on payroll for employers
• HSC levy’s mazuma spritz considerations for employers
• What the HSC levy ways for employees
• Final thoughts on the health and social superintendency levy

What is the health and social superintendency levy?

The HSC Levy is a new and spare type of personal income tax. The senior way it’s funded is from earnings – that is, deductions via PAYE in the specimen of full-time employees.

As such, the levy is potentially payable by the majority of the UK’s working population and, unlike many tax increases, it impacts most salary grades for those over 25 years old.

It’s very similar to existing National Insurance (NI) in form and function, and in fact is funded by an increase to NI contributions (NICs) in its first year (the 2022/23 tax year).

However, there are a handful of quirks that midpoint it’s not exactly the same as NI, so superintendency must be taken. We discuss these below.

The HSC levy is moreover part-funded by an increase to dividend tax, which as the name suggests, affects those that take dividends from companies.

As such, this doesn’t stupefy payroll for the majority of employees. It may stupefy those that own their own visitor for which they’re the only employee and who take dividends in wing to a salary.

What does the health and social superintendency levy cover?

The HSC levy is a new and permanent tax intended to pay for increasing NHS costs, plus the increased financing of sultana social care.

The government doesn’t believe these can be covered by increases in borrowing. Therefore, it’s introducing a third type of income tax that sooner will run slantingly tax and National Insurance deductions.

2022-2023: HSC levy’s increase in National Insurance contributions

The HSC levy will be introduced as of April 2022. For this first year, until April 2023, it is funded by a temporary increase in National Insurance contributions.

From the second year onwards (April 2023), it will be identified on wage slips and within payroll software as a separate deduction slantingly income tax and National Insurance.

Both employer and employee National Insurance contributions (NICs) are increased by 1.25%, making for a total of 2.5% per employee.

This powerfully ways that employee pay is cut by 1.25%, while the forfeit of payroll for that employee increases by 1.25%.

Here’s how the increased NICs for April 2022–April 2023 pan out:

• Employer NICs: 1.25% increase in Class 1, 1A and 1B National Insurance Contribution (NIC) rates, taking them up to 15.05% (from 13.8% currently).
• Employee NICs: 1.25% increase in Class 1 NIC rates. This takes the rate up to 13.25% for earnings unelevated the NIC Upper Earnings Limit (from 12% currently), and to 3.25% whilom that limit (from 2% currently).

2023 onwards: How to wield the HSC levy to wages

From April 2023, the temporary levy increase of 2022/23 will no longer wield to Class 1, 1A and 1B NIC rates. Instead, an entirely new HSC Levy will be identified on payslips and remunerated via an update to the PAYE system.

This is as follows.

• Health and Social Superintendency (HSC) Levy: Payslips will identify an employee contribution of 1.25% of before-tax salary, while employers will pay 1.25%, making for an volume of 2.5% per individual. The way this is processed within payroll software will be very similar to Class 1 NIC payments.

There’s an important note for older employees.

When the HSC Levy becomes a discrete tax as of April 2023, it will differ from National Insurance contributions in that it will wield to individuals whilom the state pension age who have employment income whilom £9,568.

Notably, the HSC levy does not wield to people of pensionable age prior to this, when the levy is placid via an increase in NICs.

At the other end of the spectrum, if an employee enjoys a zero rate of secondary Class 1 NICs then the HSC levy shouldn’t be applied. Examples of such employees include those under 21 years old and apprentices under the age of 25 years old.

Furthermore, unrepealable types of employees at freeport sites and former services employees in their first 12 months of employment might moreover enjoy a zero rate of Class 1 NICs.

The HSC levy’s impact on payroll for employers

Beyond mazuma spritz concerns, which are detailed below, the main considerations for employers relate to ensuring payroll software is configured in time for the coming changes – including updating, if required.

As of April 2022, you should trammels that the NI contribution categories and tables within the software are updated with the new rates, as discussed above.

And then, in April 2023, these should be reverted to the existing NI rates.

As of April 2023, you should ensure the new HSC Levy is unromantic to salaries as and where appropriate.

Because the wing of this third type of tax is a significant transpiration in how payrolls are handled, your payroll software may need a full-length update to handle it.

Cloud payroll software will scrutinizingly certainly be updated in time, but if you rely on older desktop-based software then you may need to wield a patch, or plane upgrade to a newer version.

HSC levy’s mazuma spritz considerations for employers

Depending on your business, you will probably find most employees are eligible for the HSC levy, it can be considered an constructive 1.25% increase in payroll financing for most businesses.

Associated financing might include the following:

• Reconfiguring, updating or upgrading payroll software. This can be washed-up in-house, in which specimen staff time and training may need to be budgeted for, or it might require the help of an outside agency.
• Potential pay increases to swizzle the forfeit of the 1.25% reduction in salaries. However, as we discuss later, there are potentially other ways to mitigate the impact from an employee perspective. Pay reviews can be moved closer to the April 2022 introduction stage to help manage the introduction of the levy and its impact.
• Communication and education among the workforce. This might include liaison with offsite employees or mobile workers. All communications should be timely and, to ensure coverage, may have to be by increasingly traditional methods such as post, which is significantly increasingly expensive compared to electronic communications.
• Internationally mobile workers present technically challenging issues. Work financing should be monitored where individuals are subject to UK NICs – that is, where in-bounds are unable to remain in their home country social security system, or out-bounds remain within NIC while working overseas. It should be decided sooner rather than later whether and how work policies can be amended to weightier manage the social security costs.

What the HSC levy ways for employees

Applying the HSC levy ways an constructive 1.25% cut in take-home pay for employees it applies to. Businesses may consider folding this consideration into yearly pay reviews.

To help employees understand that the levy is something not within the tenancy of the business, consider empowering employees to proceeds a greater knowledge of their salary by offering tools such as mobile apps.

These moreover indulge employees to take tenancy over their working hours, absences, and more.

Communication should be planned for periods leading up to the introduction of the levy, aiming to educate well-nigh why the levy was introduced, and what purpose it serves. There will be a tendency to vituperation the merchantry for the subtract in salary, and vital education can gainsay this.

Additionally, to soften the blow, businesses may consider focusing on salary sacrifice schemes.

Many employers once offer pension contributions by this method but schemes such as bikes for work and training can be ways to reduce taxable pay, and therefore reducing the HSC levy’s impact on wages while delivering a desirable non-cash benefit.

Not all salary sacrifice offerings can be used to reduce taxable pay, though.

Final thoughts on the health and social superintendency levy

The HSC levy comes at a time for businesses who, in April 2023, might find themselves moreover having to deal with a scheduled increase in corporation tax that was spoken older this year.

The time between now and the introduction of the levy — both in 2022 and 2023 – provide some time to squint at your merchantry structurally and prepare for increased demands on your salary.

The other side of the coin, providing for your employees, moreover needs to be addressed superiority of time so that there can be no ravages or surprises.

Editor’s note: This vendible was first published in October 2021 and has been updated for relevance.

The post What the new health and social superintendency levy ways for employers appeared first on Sage Advice United Kingdom.