Proposed U.K. tax increase – Health and Social Care Levy

AIRINC Global Tax Director Pat Jurgens joined Benivo’s 'The View from the Top' hosted by Brian Friedman, providing an update last week on the proposed U.K. tax increases, accompanied by immigration expert Julia Onslow-Cole.

The Health and Social Care Levy was proposed in early September by Prime Minister Boris Johnson under his “Build Back Better” plan. The revenue raised by the levy is intended to fund health and social programs at the National Health Service. The government expects to collect 12 billion pounds per year from the tax increase. There is a phased implementation over two years, which will make it difficult to tax plan for the increases. Implications will differ for inbound and outbound assignees. As proposed, the levy will be an extra 2.5% charge on employment income, shared equally between employee and employer, 1.25% each.

For the tax fiscal year 2022/2023, this levy will be a temporary increase in National Insurance rates. For the tax fiscal year 2023/2024, the levy will be separated out as a distinct levy and the National Insurance rates would return to the previous percentages. The revenue is earmarked exclusively for the NHS. The rules for assessing the new separate levy will be almost identical to how NIC is calculated and assessed, except that employees working beyond the state pension age that would be exempt from NIC will pay the new levy starting FY 2023.

A similar change is being made to the taxation of dividend income – an additional 1.25% levy will be assessed on dividend income. This is targeting individuals who are company directors, self-employed, and contractors who pay themselves via a company dividend in lieu of salary. The dividend levy will begin from October 2023.

Why did the UK government want to treat this as a separate levy but tie it to the NIC rules?

Maybe because of the ‘devolved’ nature of income tax in the UK. This way, employees and employers in Scotland, Wales, and Northern Ireland will pay the same levy as English employees without needing local legislatures to approve it.

Is the new levy additional social security contributions, or a separate tax on income?

Likely it is social security, but let’s wait for final enactment and regulations to be issued.

For Global Mobility professionals, a few takeaways:

• For inbound assignees holding an A1 or COC, we can presume that they will NOT need to pay the new levy. If the inbound assignee doesn’t have one, they WILL need to pay the new levy.
• For outbound assignees holding an A1, COC, or within the 52-week contribution period, we can presume that they WILL need to pay the new levy.
• Need to prepare payroll systems to handle the new levy as of 4/6/2022.

Want to hear more?

Pat joins Benivo's LinkedIn Live Shows of 'The View From The Top' with an update on tax every other Wednesday at 8am PST, 11am EDT, 4pm BST, 8:30pm IST. This week AIRINC's Jeremy Piccoli will join to discuss the 2022 Ireland Budget, and the new Costa Rican digital nomad visa.

If this time does not suit you, recordings of the show are available to watch again.