Health and Social Care Levy and NIC Increase 2022 - Are you prepared?
31 March 2022
The NIC increase from 6 April 2022 may seem relatively straightforward to apply to your practice’s payroll but, because of the way the new Health and Social Care Levy (HSCL) is being introduced there are a number of pitfalls for the unwary.
At the time of writing, NIC rates for 2022/23 will see an interim increase pending the full introduction of the HSCL from April 2023 (when NIC rates themselves will return to 2021/22 levels). The Class 1 NIC and Class 4 NIC rates will be increased by 1.25% for employees, employers and the self-employed, i.e. a total increase of 2.5% in respect of employed workers (split between the employer and employee) and 1.25% for the self-employed.
Here are some key points for practices to prepare for:
- Increased payroll costs: employers will be well aware that the 1.25% increase in their costs will need to be funded – so budgeting for those increased cost is essential to preserve your practice’s cashflow.
- National minimum wage increase from April: National Minimum Wage rates are increasing by 6.6% for the main rate. Even where employees are already on the minimum wage, practices will inevitably feel pressure to increase their pay to maintain the differential to minimum wage pay.
- Reduced take home pay for employees: in addition to the “cost of living crisis” losing just 1.25% of take-home pay will be keenly felt by employees and may lead to higher wage demands and or increased staff turnover: another staffing risk to manage alongside other staffing pressures.
- Self-employed GPs will see a cut in net income: For example, a GP with self-employed profits of £100,000 will pay an additional £1,130, assuming the NIC thresholds are not changed.
- Dividends from practices structured as companies: the income tax rates payable on dividends will also increase by 1.25% from April – for example the top rate will rise to 39.35%.
- Non-cash benefits under P11Ds and PSAs are affected: the increase in NIC for 2022/23 includes Class 1A and Class 1B NIC paid by employers on employee expenses and benefits. So where a practice uses a PAYE settlement agreement to pay taxes due on benefits provided for staff, the cost of this will increase. When the full HSCL takes effect from April 2023 it will also apply to benefits attracting an employer NIC liability.
- Settlements with HMRC: payments agreed following an enquiry that include NIC on grossed-up tax will include the extra charge for settlements agreed between 6 April 2022 and 5 April 2023. However, it is not expected the HSCL will be included in settlements agreed after 5 April 2023 (in the same way as the Apprenticeship Levy is not included).
- Agency labour supply contracts: contracts for locums or other temporary workers (including agency agreements) will need to make reference to who is responsible for paying the HSCL.
For help and advice on preparing for the NIC increase and HSCL please contact our team.