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Health and Social Care Levy and changes to National Insurance

Change to the National Insurance (NI) regime makes major demands on employers. It amounts to much more than making sure payroll systems are crunching the right numbers.

With NI contributions in an unusual state of flux, explaining all the ups and downs is likely to mean significant employee communication is needed, as well. The first change is a one-year, 1.25 percentage points increase to Class 1 employer and employee NI contributions from 6 April 2022. This means that where an employee paid contributions at 12% in the year to 5 April 2022, payment is now at 13.25%.

A further change takes place from 6 April 2023. The NI charge drops back to earlier levels, and is replaced by the Health and Social Care Levy (HSCL). This is a standalone 1.25% levy, applying to earnings chargeable to Class 1 employer and employee contributions. It will be reported as a new item through payroll, and itemised separately on payslips. The Levy has wider impact than the NI increase: the NI increase doesn’t apply to employees over state pension age, whereas the HSCL does. The HSCL will be administered and collected by HMRC.

You may have been contacted by HMRC, which is asking payroll software providers and employers to use specific payslip messaging between 6 April 2022 and 5 April 2023, to explain the initial NI increase. Neither messaging, nor wording is mandatory, and given the complexity and pace of change, you might want to consider your own communications strategy, rather than simply adopting HMRC’s. This may be particularly relevant if you are in one of the devolved nations, where health care funding operates differently.

The Spring Statement creates change to NI rules from 6 July 2022. This impacts the Class 1 Primary Threshold (the point at which employees start paying Class 1 NI contributions), and aligns it with the income tax personal allowance. As the adjustment comes part-way through the tax year, the full uplift for employees won’t be felt until April 2023, but the government estimates that a typical employee will still save over £330 in the year from July. The new threshold is equivalent to £12,570 pa, rather than the current £9,880 pa.

Company directors and the self-employed are also impacted by change to NI rates and thresholds, and the introduction of the HSCL.