1.25% tax increase to cover social care costs
The launch of a social care levy from 2022 will see all taxpayers facing a 1.25% tax charge under government plans, while dividend tax will also rise.
There are warnings that the increase in National Insurance contributions for businesses could discourage the creation of new jobs and potentially put some at risk, while the individual tax burden is at its highest for decades
Under new measures announced by the Prime Minister Boris Johnson, a new social care levy will see the introduction of a 1.25% hike in National Insurance rates for employees and employers, effective from April 2022, set to raise £12bn a year, of which £600m will be generated by an increase in the dividend tax rate.
He added: ‘We need reform and change; we need to build back better. When Covid started, 30,000 beds in hospitals were used by people waiting for care home beds. Governments have ducked this problem for decades. There can be no more dither and delay, and we cannot rely on insurance as the premiums would be too high.’
Johnson said the plan to create a specific levy as opposed to raising income tax, for example, was to ensure that the charge was spread across individuals and businesses.
He continued: ‘Our new levy will share the cost between individuals and businesses, and everyone will contribute according to their means, including those above state pension age, so those who earn more will pay more,’
‘Income tax is not paid by businesses so the whole burden would rest on individuals. The new levy will fall on businesses and individuals. And the highest earners will pay the majority.
‘And because we are also increasing dividends tax rates, we will be asking better-off business owners and investors to make a fair contribution too.’
He stressed that the highest earning 14% will pay around half the revenues, no-one earning less than £9,568 will pay the levy, and the majority of small businesses will be exempt, with 40 per cent of all businesses paying nothing at all.
This will raise an estimated £12bn a year, with money from the levy going directly to health and social care across the whole of the UK.
Existing NICs reliefs to support employers will apply to the Levy:
- Companies employing apprentices under the age of 25.
- All people under the age of 21.
- Veterans and employers in freeports will not pay the levy for these employees as long as their yearly gross earnings are less than £50,270, or £25,000 for new freeport employees.
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