UK Prime Minister, Boris Johnson, has unveiled a new UK-wide tax increase to fill the funding gap in health and social care
The tax will start as a 1.25% rise in National Insurance from April next year (2022) and will become a separate tax on earned income from 2023. A tax on share dividends will also go up by 1.25%.
That means a person earning £20,000 will see their NICs increase by £130 a year, and someone on £30,000 a year will pay £255.
Johnson admitted he had broken a manifesto promise but said the £36 billion the new levy will raise over the next three years will help the “biggest catch-up programme in the NHS’ history.”
As part of the new deal, a cap is being placed on the total anyone can spend on their care. From October 2023 no one starting care in England will be forced to spend more than £86,000 over their lifetime.
Moving forward those with assets of less than £20,000 will have their care costs fully covered by the state. Those with less than £100,000 will have their care costs subsidised.
Praveen Gupta, National Head of Tax at Azets, said: “This increase in National Insurance (NI) tax will impact the younger population more severely than older generations, at a time when the unemployment rate among under-25s is already rising.
“1.25% represents a significant tax rate hike and will have a meaningful impact on SMEs as they continue to rebuild from the pandemic and pivot their businesses in the post-Covid world.
“For SMEs, there is now even more of a need to focus on NI strategies, such as salary sacrifice measures that could provide businesses and individuals with tax savings.”