Hannah Smeesters

Lead Consultant

As an employers, it’s key to stay informed on the latest legislation and updates which will impact your benefits offering – and thus, your employees’ experience. The most recent development employers need to consider is the new Health and Social Care levy (HSC levy).

Introduced in early September 2021, there will be an increase of 1.25% to both employee and employer taxes on employment income (e.g. total overall increase of 2.5%) from 6th April 2022. The Bill will make transitional provisions that will amend Part 1 of the Social Security Contributions and Benefits Act 1992 (and the Northern Ireland equivalent) for the 2022-23 tax year and apply a temporary 1.25% point increase to each of the qualifying National Insurance contribution rates.

From 6th April 2023 it will then morph into a new Health and Social Care levy dedicated to paying for health and social care.

Overview of the changes

  • Essentially, from 6th April 2022 both employees and employers will be paying an additional 1.25% each in employment taxes.
  • In its first year, this will be applied as an increase in National Insurance contributions (NIC).
  • From 6th April 2023 onwards, National Insurance will drop back to its current levels and we will see the increase labelled as a separate tax known as the Health and Social Care levy.
  • The temporary increase in National Insurance has been done entirely for expediency, as this allows time for payroll systems to be updated for the new tax

How does the HSC Levy work?

Based on the Bill in its current form, the new HSC levy will follow the same rules as NIC but will be shown as a separate line on an individual’s payslip. This means it will:

  • Apply to the same amount of earnings or profits on which an employee, employer or self-employed individual is already liable to pay a qualifying NIC.
  • Be subject to the same thresholds and requirements of qualifying NIC (Class 1, Class 1A, Class 1B or Class 4).
  • Benefit from existing NIC reliefs (e.g. for employees under the age of 21 and apprentices under 25).
  • Be collected via the PAYE system through payroll.

There is however a key difference to existing NIC, as the HSC levy will also be paid by pensioners still in work (those past state retirement age).

Assessment of the impact on salary sacrifice

It is expected that the changes will work as follows:

  • For the 2022/23 tax year, the HSC levy will specifically apply to NIC, and therefore increases the savings available to both individuals and businesses through tax-efficient salary sacrifices.
  • From the 2023/24 tax year onwards, the early indication is that these savings will continue to be available with the Bill, specifically referencing that the HSC levy will apply NIC legislation to earnings.

In summary, the new HSC levy means that from 6th April 2022, salary sacrifice will become a more cost-effective way of paying for benefits, with the potential savings to both employee and employer increasing.

If you’d like to learn more about the upcoming HSC levy will affect your employee benefits, please do get in touch with us.

Hannah Smeesters

Lead Consultant

Hannah is a Lead Consultant at Benefex