National Insurance rises and the Health and Social Care Levy
On 8 September 2021, the Prime Minister outlined the Government’s plans for health and social care, including a new funding strategy designed to meet social care costs. A new tax, the Health and Social Care Levy, is to be introduced from 2023. However, as a temporary measure prior to its introduction, National Insurance contributions will rise for 2022/23 only. This will affect you if you are employed, self-employed or an employer.
Temporary National Insurance increases
For 2022/23 only, the rates of primary and secondary Class 1, Class 1A, Class 1B and Class 4 National Insurance contributions will all rise by 1.25%. The revenue raised as a result will go directly to support the National Health Service and equivalent bodies across the UK. From 6 April 2023, the rates will revert to their 2021/22 levels consequent on the introduction of the new Health and Social Care Levy.
Primary Class 1 National Insurance contributions
Employees currently pay primary Class 1 National Insurance at the rate of 12% on their earnings to the extent that they fall between the primary threshold (currently £184 per week) and the upper earnings limit (currently £967 per week). For 2022/23 only, the main primary rate will increase to 13.25%.
Employees also pay primary Class 1 National Insurance contributions at the additional rate on any earnings in excess of the upper earnings limit. For 2021/22, the additional rate is set at 2%. This will increase to 3.25% for 2022/23 only.
Contributions payable by an employee cease when the employee reaches state pension age.
Secondary Class 1 National Insurance contributions
Employers pay secondary Class 1 National Insurance contributions on the earnings of their employees to the extent that they exceed the secondary threshold or the relevant upper secondary threshold, as appropriate. Contributions are payable at the secondary rate. For 2021/22, this is set at 13.8%. For 2022/23 only, the secondary rate will increase to 15.05%.
For 2021/22, the secondary threshold is set at £170 per week.
Where the employee is under the age of 21, an apprentice under the age of 25, or an armed forces veteran in the first year of their first civilian job since leaving the armed forces, employer contributions are only payable to the extent that the earnings of the employee or the apprentice exceed the relevant upper secondary threshold. For each of these groups, the relevant upper secondary threshold is set at £967 per week for 2021/22. From 2022/23, employers in Freeport tax sites will only pay secondary Class 1 employer contributions on the earnings of new Freeport employees to the extent that these exceed a new upper threshold for Freeport employees. This is to be set at £25,000 a year.
Unlike employees, employers continue to pay secondary contributions on the earnings of any employees who have reached state pension age.
Class 1A National Insurance contributions
Class 1A National Insurance contributions are employer-only contributions, payable on most taxable benefits in kind, and also on taxable termination payments in excess of £30,000 and taxable sporting termination payments in excess of £100,000.
The Class 1A rate is the same as the secondary rate of Class 1 National Insurance contributions, payable by employers on employees’ earnings. Consequently, this is set at 13.8% for 2021/22. It will increase to 15.05% for 2022/23 only.
Class 1B National Insurance contributions
Class 1B National Insurance contributions are payable by employers on items included within a PAYE Settlement Agreement (PSA) in place of the Class 1 or Class 1A liability that would otherwise be due. They are also payable on the tax due under the PSA.
The Class 1B rate is also aligned with the secondary Class 1 rate, at 13.8% for 2021/22, rising to 15.05% for 2022/23 only.
Class 2 and 4 National Insurance contributions
There are two Classes of National Insurance contributions payable by the self-employed – Class 2 and Class 4. Class 2 are flat rate contributions. Class 4 are payable on profits where these exceed the lower profits limit, set at £9,568 for 2021/22. Class 4 contributions are payable at the main Class 4 rate on profits between the lower profits limit and the upper profits limit, set at £50,270 for 2021/22, and at the additional Class 4 rate on profits in excess of the upper profits limit. For 2021/22, the main Class 4 rate is 9%. For 2022/23 only, it will increase by 1.25% to 10.25%. The additional Class 4 rate is currently 2%. It will increase by 1.25% for 2022/23 only, to 3.25%.
Class 2 National Insurance contributions are not affected by the temporary increase applying for 2022/23.
Class 3 National Insurance contributions
Class 3 National Insurance contributions are voluntary contributions which a contributor may choose to pay to make up for a shortfall in their National Insurance record. Class 3 National Insurance contributions are unaffected by the temporary increase in National Insurance contributions applying for 2022/23.
Health and Social Care Levy
A new tax, the Health and Social Care Levy, is to be introduced from April 2023. Funds raised from the levy will be ring-fenced to support UK health and social care bodies.
The levy is set at 1.25%. It will be payable on the earnings on which an employee, an employer or a self-employer person is liable to pay a qualifying National Insurance contribution. Qualifying National Insurance contributions are Class 1, Class 1A, Class 1B and Class 4. However, unlike National Insurance contributions, the Health and Social Care Levy will be payable on earnings and profits of individuals who are above state pension age.
The new Health and Social Care Levy will operate in the same way as National Insurance contributions for administrative purposes.
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We can explain what the National Insurance increases and the new Health and Social Care Levy will mean for you.