Keeping abreast of tax changes, new HMRC rules and various levies affecting different UK sectors, can be the source of major headaches for business owners and finance departments, and understanding the health and social care levy is one of those considerations.
The latest tax changes announced by Government have been designed to help ensure that the current NHS backlog is eased, while also providing further support for the social care sector.
The coronavirus pandemic has caused major problems for millions worldwide, while thousands of businesses across the UK have seen their ambitions dented or seen their doors close completely.
Tax rises and levies have been planned to help the economy recover, and the health and social care levy is intended as a means of helping those two sectors back onto their feet following a hugely burdensome period.
What is the health and social care levy?
Effective from April 2022, the health and social care levy is effectively a rise in taxes that equates to a 1.25% increase in National Insurance Contributions (NICs).
These changes will be applicable to all payrolls for a period of one year, before the levy itself is formalised at the same amount in April 2023.
Unique from the usual implementation of NIC changes, this levy will apply to groups of people including working pensioners, while dividend payments to shareholders and employer contributions will also be subject to the changes.
When all factors are considered the changes will be realised in real terms as follows:
- Basic-rate taxpayers will pay 8.75% tax on dividend income of £12,571 to £50,270
- Higher-rate taxpayers will incur 33.75% on dividend income of £50,271 to £150,000
- Additional-rate payers will pay 39.35% on dividend income over £150,000
What are the tax planning considerations?
The changes should not be cause for panic and alarm, but they should instigate a period of preparation for businesses in order to minimise disruption.
Many businesses may consider extracting money from the company by way of dividend payments and director bonuses, which must be concluded before April 2022, while you may also consider extracting finance from companies that don’t attract NICs.
This may include:
- Drawing down directors’ loans
- Reviewing the rents paid to directors for properties used by the business
You may also consider the mixture of dividend income against capital gains, although caution is advised as the latter may yet be subject to Government review.
There are myriad other things to bear in mind, and it can be difficult to know where to start, but with a little preparation you can ensure that your business is adequately equipped.
How can Relative help?
Relative delivers accountancy that’s designed around your business – not ours.
To make sure we really understand our clients, we do our research to learn about you and what makes your business thrive. We’ve developed a specific process to ensure this all goes to plan.
We always begin with an insightful, person-centred approach. We’ll investigate your business, delving into the problems you face and, more importantly, where you want to be.
Once we get under the skin of your business, we can present your options, agree where to go next and advise where your responsibilities (and ours) converge.
Get in touch and let’s have a conversation.