Health and Social Care Levy: A New Tax

On 7 September 2021, the Prime Minister announced that a new tax, the Health and Social Care Levy (HSCL), will be introduced from Spring 2023.

In the interim, the employer, employee and self-employed rates of National Insurance (NIC) will all be temporarily increased by 1.25% for 2022/23.

The HSCL will tax a wider base than NIC. It will apply to all earnings (including those of pensioners, and those which are above the limit for the standard rates of NIC) and dividend income. Alongside the new tax, the Prime Minister announced a proposed cap of £86,000 for a lifetime contributions to care costs for all individuals entering care from October 2023, and a means tested partial state contributions to care costs for individuals with assets between £20,000 and £100,000.

The latter announcement was widely welcomed by farming families who had long been terrified by the massive costs which sometimes decimate inheritances, and many viewed the new HSCL tax as a fair price for that protection.

However the picture is not yet so clear:

• The HSCL is being hypothecated to fund ‘health care and social care’, with the Treasury to determine the split. Some commentators have suggested that the HSCL may be used predominantly to fund the NHS rather than social care.

• Government’s proposed cap is specifically for ‘care’ costs. Crippling charges for ‘accommodation’ (outside the £86,000 cap) in care homes might continue to be imposed.

All we really know so far is that a new, widely based tax on income will cost 1.24% (or effectively 2.5% on businesses’ employment costs) from April 2022.

Please speak to us if you would like an estimate of the likely impact on your tax position.