UPDATE: National Insurance Tax Rise -Employers
What employers need to know.
The new Health and Social Care Levy – what employers need to know
The Health and Social Care Levy Bill (the HSC Levy) which, when enacted, will legislate for the new UK wide levy to help fund health and social care, has been published. This article summarises key features of the new levy, and what employers need to consider as they prepare for its introduction. We cover the impact for individuals in a separate article.
What are the current proposals?
In summary, the Government’s current proposals as set out in the Bill are that:
· From 6 April 2022, there will be a temporary 1.25 percent increase in Class 1, 1A and 1B National Insurance Contribution (NIC) rates to 15.05 percent for employers, and in Class 1 NIC rates for employees to 13.25 percent (below the NIC Upper Earnings Limit) and to 3.25 percent (above that limit); and
· From 6 April 2023, the new HSC Levy will apply to both employers and employees (including those above the state pension age) at a rate of 1.25 percent (i.e. a combined rate of 2.5 percent) – Class 1, 1A and 1B NIC rates will then revert to their current levels.
How will the new HSC Levy work for employers and employees?
The Health and Social Care Levy Bill was introduced to Parliament on 8 September 2021. Based on the Bill in its current form, the HSC Levy will:
· Apply to the same earnings as Class 1 NIC above the Class 1 NIC primary and secondary thresholds;
· Also benefit from existing NIC reliefs (e.g. for employees under the age of 21, apprentices under 25, qualifying freeport employees, and the employment allowance); and
· Be collected via the PAYE system through payroll.
The Government’s publications of 7 September 2021 did not address how or whether the NIC increase and new levy would apply to Class 1A or Class 1B NIC liabilities on benefits in kind. However, the Bill confirms that Class 1A and 1B NIC will indeed rise in line with Class 1 NIC from 6 April 2022, and that benefits in kind will be subject to the HSC Levy from April 2023.
As the HSC Levy is based on current NIC principles, it should apply to internationally mobile individuals only where they have a NIC liability. Individuals who are exempt from NIC (e.g. who hold a Certificate of Coverage or A1) should therefore be outside its scope.
On off-payroll working (IR35), where individuals are deemed to be employees under these rules, so are subject to Class 1 NIC, the HSC Levy should also apply.
And finally, from an employee benefits perspective, the proposed measures may renew some businesses’ focus on salary sacrifice as a means of cost-efficient remuneration.
Many employers already offer pension contributions, bikes for work and childcare on this basis where possible. However, for those who do not – and are able to do so – the Government’s proposals may provide reason to reassess employee benefit offerings.
What should employers do?
Employers should assess the likely implications of the proposed NIC increases and the new HSC Levy for their employees, contingent labour and businesses.
Points to consider include:
· The effect of the expected 1.25 percent increase on budgeted workforce costs from 6 April 2022;
· Whether, during the temporary NIC increase in 2022/23, agreements to transfer employer’s NIC on share-based payments should be amended to limit the amount borne by employees to the current rate; and
· The potential effect on their internationally mobile population, in particular:
o The potential increase in assignment costs where individuals are subject to UK NIC (e.g. where in-bounds are unable to remain in their home country social security systems, or out-bounds remain within NIC whilst working overseas); and
o Whether and how assignment policies could be amended to best manage the social security costs.
Employers should also consider whether to undertake a communication exercise for employees and off-payroll workers to highlight these changes: covering their overall impact and drawing out broader consequences such as salary sacrifice savings.
The impact of the new levy for individuals is covered in a separate article.
Lavan, M., 2021. The new Health and Social Care Levy – what employers need to know. [online] KPMG. Available at: <https://home.kpmg/uk/en/home/insights/2021/09/tmd-the-new-health-and-social-care-levy-what-employers-need-to-know.html> (Accessed 24 September 2021).