In September, the government set out the new Health and Social Care Levy that is to be introduced to pay for increased spending on health & social care measures. It is intended, in the first instance, to support the NHS in its attempts to recover from the pandemic, before being used to help the desperately fraught and pressured social care sector.
There has been no shortage of commentary on predicting the success of the government’s plans but, whatever your thoughts on this, the one thing that is clear is that being a UK employer is about to become more expensive.
From April 2022, the new levy will result in an increase in employment taxes by 2.5%, shared between employers and their staff.
Initially, this will manifest as a temporary increase of 1.25% in employer and employee National Insurance Contribution (NIC) rates. From April 2023, the 1.25% levy will be formally separated and appear as a separate tax within employee payslips. Employer and employee NIC rates will then return to the current (2020/21) rates.
Though there’s never a good time to discuss and implement tax increases and the backdrop for the government’s plans has felt particularly painful as the cost of living continues to increase rapidly during 2021 as a result of strong economic recovery and global supply chain disruption.
This, along with our energy suppliers going bust was troubling enough but the bad news was compounded for UK consumers when it was announced that we could expect to pay up to 50% more for pasta, our go-to crisis food, by the end of this year due to droughts in Canada and supply chain issues in Italy.
Coming back on topic and more seriously, even though the Health and Social Care Levy manifests as an increase to both employer and employee tax rates, ultimately it will be the employer that has to budget for this within their business plans and within the annual pay review discussion with their staff.
What can employers do?
Faced with these increased employment costs and employees’ net incomes being squeezed further, employers will need to analyse the impact on cashflow and profitability and consider what steps they can take to mitigate the effect of the tax increases.
One solution is to review your employee benefits package and determine what efficiencies can be achieved. These can include but is not limited to:
- Implementing salary exchange for pension contributions which reduce NIC costs for both employers and employees
- Using employee benefits with low taxable/NIC-able value
- Helping employee’s net pay go further through the provision of voluntary employee benefits and through facilitating employee discount arrangements
Employers have until 5 April 2022 to prepare and those that start the review process now have the best chance of mitigating the effects of these increased employment costs.
For further information on how our experienced employee benefits consultants can help you, please contact us.