Tag: Health and Social Care levy

National Insurance increase reversed

The 1.25 percentage point rise in National Insurance will be reversed from 6 November, Chancellor Kwasi Kwarteng has announced

  • April’s National Insurance increase to be reversed from November – delivering on key PM pledge to cut tax burden and promote economic growth
  • Health and Social Care Levy will be cancelled through Bill introduced today – Chancellor has confirmed funding for health and social care services will be protected and will remain at the same level as if the Levy were in place
  • Almost 28 million people will keep an extra £330 of their money on average next year, whilst 920,000 businesses are set to save almost £10,000 on average next year thanks to the change

Delivering on the Prime Minister’s pledge to slash taxes to help drive growth, scrapping the rise will reduce tax for 920,000 businesses by nearly £10,000 on average next year as they will no longer pay a higher level of employer National Insurance and can now invest the money as they choose.

The government will also cancel the planned Health and Social Care Levy – a separate tax which was coming into force in April 2023 to replace this year’s National Insurance rise.

This will help almost 28 million people across the UK keep more of what they earn, worth an extra £330 on average in 2023-24, with an additional saving of around £135 on average this year.

The Health and Social Care Levy (Repeal) Bill, legislating for the tax change, has been introduced into the House today. As part of the cancellation of the Levy, The Chancellor is also set to confirm that the increases to dividend tax rates will be scrapped from April 2023 in his Growth Plan tomorrow.

The increased dividend tax was introduced in April 2022 to ensure those who gained income from dividends contributed the same amount to help fund health and social care.

The Levy was expected to raise around £13 billion a year to fund health and social care. The Chancellor confirmed today that the funding for health and social care services will be maintained at the same level as if the Levy was in place, protecting the NHS through the winter and ensuring long-term investment in social care.

Chancellor of the Exchequer Kwasi Kwarteng said: “Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.

“Cutting tax is crucial to this – and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the Levy will help them grow, whilst also allowing the British public to keep more of what they earn.”

The previous government decided to raise National Insurance by 1.25 percentage points in April 2022 to fund health and social care. The rate was due to return to 2021-22 levels in April 2023, when a separate new 1.25% Health and Social Care Levy was due to take effect. Today’s legislation reverses the rise from earlier this year and cancels next year’s introduction of the Levy.

This is part of the government’s pro-growth agenda, backing business to invest, innovate and create jobs and helping raise living standards for everyone across the UK.

920,000 businesses will see a cut in National Insurance bills, with 20,000 taken out of paying National Insurance entirely due to the Employment Allowance, which rose in April 2022 from £4,000 to £5,000.

In particular, many small and medium businesses (SMEs) – who employ over 13 million people in the UK – will see a cut to their National Insurance bills. Next year this will be worth £4,200 on average for small businesses and £21,700 for medium sized firms who pay National Insurance. In total 905,000 micro, small and medium businesses will benefit from 2023-24.

National Insurance thresholds increased in July 2022 to lift 2.2 million of the poorest people in the UK out of paying the tax. The Chancellor has committed to retaining the level of these thresholds to support families. Taken together, the higher thresholds and the Levy reversal mean that almost 30 million people will be better off by an average of over £500 in 2023-24.

With immediate action pledged by the Prime Minister to maximise the cash benefit for people and businesses this year, the government is implementing the changes as soon as possible. Most employees will receive a cut to their National Insurance directly via payroll in their November pay, with some receiving it in December or January, depending on the complexity of their employer’s payroll software.

In addition, the Chancellor is expected to announce in his fiscal event tomorrow that the 1.25 percentage point increase to income tax on dividends announced alongside the Levy, and introduced in April 2022, will be reversed from April 2023.

Those who pay tax on dividends will save an average of £345 next year. The reversal of the ‘dividend tax’ rise signals renewed support for entrepreneurs and investors as part of the government’s drive to grow the economy and improve the standard of life for families across the UK.

Overall funding for health and social care services will be maintained at the same level as if the Levy were in place, and the government will be doing this without a tax increase. The additional funding used to replace the expected revenue from the Levy will come from general taxation.

The Chancellor is committed to reducing debt-to-GDP ratio over the medium-term and boosting growth, which will help sustainably fund public services.

Business leaders have welcomed the announcement.

Martin McTague, National Chair, the Federation of Small Businesses said: “This is clear and decisive action to support growth.

“The decision to reverse all four of these tax rises will support livelihoods, jobs and small businesses across the UK. Removing taxes on jobs, investment and growth is the right thing to do, and FSB has campaigned long and hard for this decision.

“The Chancellor is making clear he will let small businesses do what they do best: create jobs and support their local communities.

Shevaun Haviland, Director General, the British Chambers of Commerce said: “After months of campaigning, today’s Government announcement to reverse the increase to the National Insurance Contribution (NIC) is a big win for the British Chambers of Commerce and the business community.

“This is much needed support for businesses during these difficult times. 

“There are a range of other challenges that must be addressed including labour shortages, supply chain disruption, and rising raw material costs.

“Tomorrow’s mini budget from the Chancellor is now a critical moment. To truly revitalise our economy for the difficult months ahead then tomorrow must bring a clear long-term plan that gives business the confidence to grow.” 

Michelle Ovens CBE, founder, Small Business Britain said: “Small businesses need all the help they can get right now, so this move to reverse the national insurance rise will no doubt be received positively by business owners across the country, providing a boost that will go some way to help the many small firms out there struggling with cash flow.

“It is also good to see the immediacy of the action taken.”

Kitty Ussher, Chief Economist, the Institute of Directors, said: ““Businesses right across the country will be applauding the Government’s realisation that raising employers’ national insurance was a mistake.

“As the Institute of Directors has consistently and repeatedly argued from the outset, this was quite simply a tax on jobs, which businesses had to pay regardless of whether they are profitable. And the public agreed – the petition we launched at the beginning of the year attracted over 189,000 signatures.

“Many of our members told us that the impact of the increase was that they would have no choice but to push up prices, making inflation even worse. Others said the rise in the cost of employing people meant they would think twice about taking new staff on, or potentially make the difficult decision to let colleagues go.

“An independent report we commissioned from NIESR confirmed that the tax would reduce the UK’s international competitiveness and hit hardest those parts of the economy that suffered most from the pandemic. And even the Treasury itself said it would have ‘significant macroeconomic impact’.

Verity Davidge, Director of Policy, Make UK, said: “The Chancellor has clearly recognised the difficult situation companies are facing in response to eye watering increases in costs across the board.

“This is a welcome common sense reversal of a proposal which was both illogical and ill-timed when it was announced and, is even more so now given it is a tax on jobs. With the cost of employment in particular skyrocketing  this will put cash back in the pockets of businesses and consumers at a time when they are burning through their cashflow at a rate of knots.

“Therefore, at a time when business is already facing unprecedented energy and other supply-side costs, this is a hugely important change that can improve the situation for SMEs trying to grow in very difficult circumstances.”

Andrew Goodacre, Chief Executive, British Independent Retailers Association said: “We have been concerned for some time about the rising costs of running a business. We therefore welcome this reversal of the NI increases as it will reduce the burden on employers as well as employees.

“Together with the recent energy support package, we hope the consumer confidence and business confidence return in readiness for the most important trading time of the year”.

REVERSAL OF THE HEALTH AND SOCIAL CARE LEVY: FACTSHEET

  • The government is committed to a low-tax, high-growth economy. To make sure people keep more of the money they earn and for businesses to have the right conditions to drive investment, growth and productivity.
  • The government is therefore cancelling the Health and Social Care Levy – initially introduced via a 1.25 percentage point rise in National Insurance contributions (NICs) – which took effect in April 2022.
  • This will be delivered in two parts:
    • The government will reduce National Insurance rates from 6 November 2022, in effect removing the temporary 1.25 percentage point increase for the remainder of the 2022-23 tax year;
    • The 1.25% Health and Social Care Levy will not come into force as a separate tax from 6 April 2023 as previously planned.
  • This tax cut reduces 920,000 businesses’ tax liabilities by £9,600 on average in 2023-24. This is 60% of the UK’s businesses with employer NICs liabilities.
  • It means 28 million people across the UK will keep an extra £330 a year, on average, in 2023-24.
  • We are making this change as quickly as possible, with it coming into force on 6 November.

How does cancelling the Health and Social Care Levy help spur growth?

  • This government’s central mission is to raise living standards for all in the UK through growing the economy through the private sector.
  • As a result of this tax cut, businesses will have more money to invest in becoming more productive, pay higher wages, create more jobs and support the overall growth of the UK economy.
  • Approximately 60% (920,000) of businesses with NICs liabilities will see a reduction their National Insurance bills, with 20,000 of these businesses taken out of paying NICs entirely due to the Employment Allowance, a relief which allows eligible businesses to reduce their employer National Insurance bills each year.
    • At Spring Statement, on 23 March 2022, the previous government announced this would be rising by £1,000 from £4,000 to £5,000, which means 40% of businesses with NIC liabilities do not pay NICs.
  • The average saving for businesses is £9,600 in 2023-24.
  • For small and medium businesses who see their NICs bills reduced, the average saving is £4,200 and £21,700 respectively in 2023-24.
  • The sectors benefitting most from the reversal are professional, scientific and technical; wholesale and retail trade, repair of motor vehicles and motorcycles; and construction.

When will people receive the extra cash?

  • Most employees will receive the cut in their November 2022 pay directly via their payroll.
  • Basic rate taxpayers will on average see a gain of approximately £75 in 2022-23 rising to £175 in 23-24. For higher rate taxpayers, these figures are on average approximately £300 in 2022-23 rising to £700 in 23-24. For additional rate taxpayers, the gain will be on average approximately £1,650 in 2022-23 rising to £3,890 in 23-24.
  • Due to the complexities of some payroll software systems, there will be some people who receive the cut backdated in December 2022 or January 2023.
  • Although individuals should contact their employer for refunds as a first port of call in all circumstances, there may be circumstances where individuals may need to apply to HMRC for a refund (for example, if their employer is no longer trading, or if an individual has moved roles and their previous employer has confirmed they are unable to issue a refund retrospectively themselves).

Will there be less funding for health and social care as a result?

  • The Levy and increased dividend tax was expected to raise approximately £13 billion a year to fund health and social care. Funding for health and social care services will be maintained at the same level as if the Levy was in place.

What does this mean for the self-employed ?

  • Self-employed people and company directors will pay a blended rate of National Insurance – taking into account the changes in rates throughout the year – when they submit their annual self-assessment return.

What is happening to income tax on dividends?

  • From April 2023 the government is reversing the 1.25 percentage point increase to the rate of income tax on dividends which took effect in April 2022.
  • This move is designed to support entrepreneurs and investors as we seek to raise living standards through economic growth.

Extra information

  • For more information on National Insurance click here.

What does a “very difficult winter” look like for low-income families?

A lower-income couple with two young children where one adult is working full-time is going to need to find an additional £31-a-week to cover the cost of living and falling benefit rates from October, according to new analysis by the Joseph Rowntree Foundation.

In an interviewyesterday, the Business Secretary warned “it could be a very difficult winter”. This comes amid growing concern across the political spectrum that the rising cost of living is about to put immense strain on low-income families.

If the Government proceeds with cut to Universal Credit as planned, changes to the energy price caps, and inflation means that at the same time this couple family are trying to compensate for the £20-a-week they had before the cut, they will soon need to find an additional:

  • £3 for energy (assuming pre-payment meter)
  • £8 for other living costs

= an additional £11 per week from October.

On top of this, the same family would need to find an extra £2.50 to cover the increase in National Insurance Contributions from April 2022 because of the Health and Social Care levy.

This would mean in total this family may need to find an additional £13.50 per week or £710 per year (around the entire clothing and footwear annual budget for this kind of family) as well as losing £20 a week from Universal Credit. For this family, the extra costs alone equate to around 3.5% of their weekly disposable income.

Peter Matejic, Deputy Director of Evidence & Impact at the Joseph Rowntree Foundation, said: “Millions of low-income families are incredibly anxious about how on earth they are supposed to make ends meet from next month.

“Ministers rightly recognise this is shaping up to be a very difficult winter, yet there is little sign of them taking the decisive steps that are necessary to avoid real hardship for low-income families.

“The growing concern about the cost of living reinforces why cutting Universal Credit makes absolutely no sense. Social security is a key defence in protecting families from precisely these sorts of economic shocks, but the Government is on course to impose the biggest ever overnight cut to the system and leave families with an inadequate lifeline.

“The Prime Minister urgently needs to keep the £20-a-week increase to Universal Credit in place. Rising child poverty, soaring demand for food banks, people worrying about keeping their homes and covering the cost of bills, flies in the face of uniting and levelling up our country.”