Shareholders 1.25% Worse Off Under The NHS Health and Social Care Levy
The levy will see an unprecedented 1.25% increase in NI contributions and dividend payments
Shareholders of small businesses to be hit especially hard by double taxation
Why is National Insurance Increasing?
The changes brought about by the NHS Health and Social Care Levy may seem very complicated at first but can be broken down into simple chunks:
- NI payments for employees and employers will increase by 1.25% per annum until 2023
- After this, NI will return to current rates and will be replaced by a new Health and Social Care levy, also at 1.25%
- This is combined with an additional 1.25% charge on dividends
This means that employers could be hit twice by the tax hike; first when they pay employers NI and again when they take their wage through dividends. Functionally, this is a tax double-whammy that will be felt most severely by small businesses.
Why is The NHS Health and Social Care levy Happening?
England is currently facing a crisis in adult social care: there is simply far more demand than supply. Currently, there are 300,000 people going without the care they need due to long waiting lists and thousands of vulnerable adults die before ever receiving care.
The NHS Health and Social Care levy aims to reduce this number by generating funds specifically for the health and social care sector, although it has been met with much scepticism from political and economic standpoints.
The tax raise is expected to generate £36 billion to address the healthcare crisis.
This is a very controversial measure and could have a massive impact on businesses across the country.
The Business Impact of the Levy
The first and most prominent impact of the NHS Health and Social Care levy is that many businesses will face additional employer costs. You will be expected to pay an additional 1.25% in the employer’s NI contributions.
If you take your income from dividends, you will also be subject to an additional tax of 1.25% of your income. From 2022, the tax rate on dividends will be as follows:
| Tax Bracket | Percentage Charged |
| Basic rate taxpayers | 8.75% |
| Higher rate taxpayers | 33.75% |
| Additional rate taxpayers | 39.35% |
These tax increases are coming at the same time as the Personal Allowance freeze and Corporation Tax raising to 25% (from 19%), meaning that the impact of this levy will be felt acutely as business owners find their profits shrinking even more whilst costs continue to mount.
Dwindling profits and higher tax obligations may have a huge impact on a business owner’s ability to employ staff, particularly with small businesses. It may become more of a struggle to keep staff especially for those who were unable to claim any Covid-19 grants.
At Tax Expert, we can help you minimise the impact of these tax hikes with advance planning. We can form a strategy that combines dividends with trusts and allowances. We take a holistic approach to our work that means we can take a broad look at your tax situation to help reduce your liability.
Book a consultation with us today to learn more about what we can offer you. Contact us today at Tax Expert.
Kind regards Ilyas