National Insurance rise to address UK funding crisis in care sector

The Prime Minister Boris Johnson Portrait

UK Prime Minister, Boris Johnson, has unveiled a new UK-wide tax increase to fill the ever-widening funding gap in health and social care.

The tax will start as a 1.25% rise in National Insurance from April next year (2022), and will become a separate tax on earned income from 2023. The tax on share dividends will also go up by 1.25%.

That means a person earning £20,000 will see their NICs increase by £130 a year, and someone on £30,000 a year will pay £255 more.

Johnson, admitted he had broken a manifesto promise, but said the £36 billion the new levy will raise over the next three years will help the “biggest catch-up programme in the NHS’ history”.

As part of the new deal a cap is being placed of the total anyone can spend on their care. From October 2023 no one starting care in England will be forced to spend more than £86,000 over their lifetime.

Moving forward those with asset s of less than £20,000 will have their care costs fully covered by the state. Those with less than £100,000 will have their care costs subsidised.

Praveen Gupta, National Head of Tax at Azets, said: “This increase in National Insurance (NI) tax will impact the younger population more severely than older generations, at a time when the unemployment rate among under-25s is already rising.

“1.25% represents a significant tax rate hike and will have a meaningful impact on SMEs as they continue to rebuild from the pandemic and pivot their businesses in the post-Covid world.

“For SMEs, there is now even more of a need to focus on NI strategies, such as salary sacrifice measures that could provide businesses and individuals with tax savings.”