What is the Social Care Levy?

April 2022

The Social Care Levy is a new tax related to income.  The government has explained that funds raised will go directly to support the NHS and other care providers across the UK.

In the 2022-2023 Tax Year (from April 6th 2022) the measure will see an increase of 1.25% on both main and additional rates of Class 1 (paid by employees), Class 1A, Class 1B (paid by employers) and Class 4 (paid by self-employed) National Insurance contributions.  

In April 2023, National Insurance contributions will decrease to previous levels (2012/22 tax year) and the separate Health and Social Care Levy will take effect.  Individuals above state pensionable age will be also be liable for the new levy from April 2023 onwards.

In both instances, the additional contribution will be collected via the payroll process.

 

Why is the Social Care Levy being introduced?

The Government introduced the Health and Social Care Levy Bill in September 2021. The Bill was given Royal Assent in October 2021 and is now the Health and Social Care Levy Act 2021.The purpose of the Act is to increase funds for the NHS and other care bodies. The Government announced that they had taken the decision to raise additional funds through taxation, rather than through further borrowing. This, they say, will lead to a permanent increase in spending across the organisations. The Act is being applied across all four nations of the UK to help find a solution for long-term funding for the national services.

The Government aims to raise £12 billion per annum, for the next three years, to pay for the proposals promised in 2019, to reform health and social care services.

 

What is the likely economic impact of the Social Care Levy?

Both businesses and individuals will be impacted by the implementation of the Social Care Levy. The Government anticipates there will be an impact on earnings and company profits. There may also be a rise in inflation. There may also be an impact on whether businesses decide to recruit new personnel which may have a knock-on effect on the unemployment rate within the UK. New and existing businesses may make alternative decisions when it comes to incorporation, as well as other behavioural considerations. 

Impact on businesses

Businesses across the UK will be required to make the change. There will be costs associated for businesses running payroll through legacy systems as system upgrades will be required, which service providers may charge for. There will also likely be costs associated with updating employee payroll guidance and familiarisation with the new requirements.

 

How can PayCaptain help?

PayCaptain has already developed the functionality on the Cloud Payroll solution to manage the additional implications of the temporary Social Care Levy being introduced in April 2022. For existing clients, on April 6th 2022, the transition for additional contributions to be taken through payroll will be seamless. Businesses will have no need for additional payroll management time or new software for the change to be implemented.

But what more can be done to help? PayCaptain can help reduce the additional financial liability by helping companies to set up a Salary Sacrifice scheme.  This means salary sacrifice schemes become an even more efficient way to make pension contributions, as it reduces the earnings on which National Insurance contributions apply.

When implementing the PayCaptain payroll solution, the team will help you switch your pension to a Sustainable Pension Provider and also help you implement a Salary Sacrifice Scheme, which means both you and your employees can reduce the amount of National Insurance and levies due.

PayCaptain’s graphical payslips will clearly show all deductions from pay including the new Health and Social Care Levy for your employees.

In summary, the implementation of the Social Care Levy in April 2022 is going to hit pockets – both of employers and employees. The increase in costs to be borne by businesses can be mitigated by transitioning to a Cloud Payroll solution where the functionality has already been developed and implemented, ready for the new requirements. Further mitigation and cost savings can benefit businesses through the implementation of both Sustainable Pensions and Salary Sacrifice Schemes.

If you’d like to learn more about how we can help your business, please contact us and we’ll be happy to arrange a time to demo the PayCaptain functionality.

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