Editor’s notice: Within the authorities’s mini-Finances on 23 September 2022, it was revealed that the well being and social care levy has been cancelled. Study extra in our article: Mini-Budget 2022: What the announcements mean for your business.

In September 2021, the UK authorities introduced the well being and social care (HSC) levy.

As with every change in taxation, the introduction of the levy supplies a chance to empower and educate employees in terms of wage funds in order that they really feel extra in management.

On this article, we spotlight particulars of the brand new well being and social care levy, what it covers, what it means for Nationwide Insurance coverage contributions, and what it means for you and your staff.

Right here’s what we cowl:

The HSC Levy is a brand new and extra kind of non-public revenue tax. The chief approach it’s funded is from earnings – that’s, deductions via PAYE within the case of full-time staff.

As such, the levy is probably payable by the vast majority of the UK’s working inhabitants and, not like many tax will increase, it impacts most wage grades for these over 25 years previous.

It’s similar to current Nationwide Insurance coverage (NI) in type and performance, and actually is funded by a rise to NI contributions (NICs) in its first yr (the 2022/23 tax yr).

Nonetheless, there are a handful of quirks that imply it’s not precisely the identical as NI, so care should be taken. We focus on these under.

The HSC levy can be part-funded by a rise to dividend tax, which because the title suggests, impacts those who take dividends from corporations.

As such, this doesn’t have an effect on payroll for almost all of staff. It might have an effect on those who personal their very own firm for which they’re the one worker and who take dividends along with a wage.

The HSC levy is a brand new and everlasting tax supposed to pay for rising NHS prices, plus the elevated prices of grownup social care.

The federal government doesn’t imagine these will be lined by will increase in borrowing. Due to this fact, it’s introducing a 3rd kind of revenue tax that ultimately will run alongside tax and Nationwide Insurance coverage deductions.

The HSC levy can be launched as of April 2022. For this primary yr, till April 2023, it’s funded by a temporary increase in National Insurance contributions.

From the second yr onwards (April 2023), it is going to be recognized on wage slips and inside payroll software as a separate deduction alongside revenue tax and Nationwide Insurance coverage.

Each employer and worker Nationwide Insurance coverage contributions (NICs) are elevated by 1.25%, making for a complete of two.5% per worker.

This successfully implies that worker pay is reduce by 1.25%, whereas the price of payroll for that worker will increase by 1.25%.

Right here’s how the elevated NICs for April 2022–April 2023 pan out:

  • Employer NICs: 1.25% improve in Class 1, 1A and 1B Nationwide Insurance coverage Contribution (NIC) charges, taking them as much as 15.05% (from 13.8% at present).
  • Worker NICs: 1.25% improve in Class 1 NIC charges. This takes the speed as much as 13.25% for earnings under the NIC Higher Earnings Restrict (from 12% at present), and to three.25% above that restrict (from 2% at present).

From April 2023, the non permanent levy improve of 2022/23 will now not apply to Class 1, 1A and 1B NIC charges. As a substitute, a completely new HSC Levy can be recognized on payslips and remunerated by way of an replace to the PAYE system.

That is as follows.

  • Well being and Social Care (HSC) Levy: Payslips will determine an worker contribution of 1.25% of before-tax wage, whereas employers can pay 1.25%, making for an combination of two.5% per particular person. The way in which that is processed inside payroll software program can be similar to Class 1 NIC funds.

There’s an essential notice for older staff.

When the HSC Levy turns into a discrete tax as of April 2023, it should differ from Nationwide Insurance coverage contributions in that it’ll apply to people above the state pension age who’ve employment revenue above £9,568.

Notably, the HSC levy doesn’t apply to folks of pensionable age previous to this, when the levy is collected by way of a rise in NICs.

On the different finish of the spectrum, if an worker enjoys a zero price of secondary Class 1 NICs then the HSC levy shouldn’t be utilized. Examples of such staff embody these below 21 years previous and apprentices below the age of 25 years previous.

Moreover, sure sorts of staff at freeport websites and former companies staff of their first 12 months of employment may additionally take pleasure in a zero price of Class 1 NICs.

Past money movement issues, that are detailed under, the principle concerns for employers relate to making sure payroll software program is configured in time for the approaching modifications – together with updating, if required.

As of April 2022, you must test that the NI contribution classes and tables inside the software program are up to date with the brand new charges, as mentioned above.

After which, in April 2023, these ought to be reverted to the present NI charges.

As of April 2023, you must guarantee the brand new HSC Levy is utilized to salaries as and the place acceptable.

As a result of the addition of this third kind of tax is a big change in how payrolls are dealt with, your payroll software program might have a function replace to deal with it.

Cloud payroll software will virtually actually be up to date in time, however if you happen to depend on older desktop-based software program then it’s possible you’ll want to use a patch, and even improve to a more recent model.

Relying on your enterprise, you’ll in all probability discover most staff are eligible for the HSC levy, it may be thought of an efficient 1.25% improve in payroll prices for many companies.

Related prices may embody the next:

  • Reconfiguring, updating or upgrading payroll software program. This may be completed in-house, wherein case employees time and coaching could have to be budgeted for, or it’d require the assistance of an outdoor company.
  • Potential pay will increase to soak up the price of the 1.25% discount in salaries. Nonetheless, as we focus on later, there are probably different methods to mitigate the impression from an worker perspective. Pay opinions will be moved nearer to the April 2022 introduction date to assist handle the introduction of the levy and its impression.
  • Communication and schooling among the many workforce. This may embody communication with offsite staff or cellular staff. All communications ought to be well timed and, to make sure protection, could need to be by extra conventional strategies equivalent to put up, which is considerably costlier in comparison with digital communications.
  • Internationally cellular staff current technically difficult points. Project prices ought to be monitored the place people are topic to UK NICs – that’s, the place in-bounds are unable to stay of their residence nation social safety system, or out-bounds stay inside NIC whereas working abroad. It ought to be determined sooner slightly than later whether or not and the way project insurance policies will be amended to greatest handle the social safety prices.

Making use of the HSC levy means an efficient 1.25% reduce in take-home pay for workers it applies to. Companies could contemplate folding this consideration into annual pay opinions.

To assist staff perceive that the levy is one thing not inside the management of the enterprise, contemplate empowering staff to achieve a better information of their wage by providing instruments equivalent to cellular apps.

These additionally permit staff to take management over their working hours, absences, and extra.

Communication ought to be deliberate for intervals main as much as the introduction of the levy, aiming to teach about why the levy was launched, and what goal it serves. There can be a bent accountable the enterprise for the lower in wage, and primary schooling can fight this.

Moreover, to melt the blow, companies could contemplate specializing in wage sacrifice schemes.

Many employers already provide pension contributions by this technique however schemes equivalent to bikes for work and coaching will be methods to scale back taxable pay, and due to this fact lowering the HSC levy’s impression on wages whereas delivering a fascinating non-cash profit.

Not all wage sacrifice choices can be utilized to scale back taxable pay, although.

The HSC levy comes at a time for companies who, in April 2023, may discover themselves additionally having to take care of a scheduled increase in corporation tax that was introduced earlier this yr.

The time between now and the introduction of the levy — each in 2022 and 2023 – present a while to have a look at your enterprise structurally and put together for elevated calls for in your wage.

The opposite aspect of the coin, offering in your staff, additionally must be addressed forward of time in order that there will be no confusion or surprises.

Editor’s notice: This text was first printed in October 2021 and has been up to date for relevance.

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