01 November 2021

Gemma Mullis MCIPP, CIPP policy and research officer, gives the lowdown on the health and social care levy, discussing what payroll professionals should expect in the years to come

While payroll professionals around  the UK were celebrating National Payroll Week, the prime minister, Boris Johnson, gave us a treat of his own – the announcement that payroll professionals will be required to pull up their sleeves and tackle processing a newly announced health and social care levy.


What is the tax?

Speculation was rife in the weeks leading to the official announcement that National Insurance contributions (NICs) would increase. This was to raise funds needed by the National Health Service (NHS) and the social care sector.

The prime minister made the announcement on 7 September 2021, advising Parliament of the introduction of a new tax, which in tax year 2022/23, would see a temporary increase of 1.25% to both the main and additional rates of class 1, class 1A, class 1B and class 4 NICs.

In tax year 2023/24, NIC rates will revert to those applicable in 2021/22 and the levy (at the same rate of 1.25%) will be paid and processed in isolation.


What does this mean for the payroll industry?

Payroll professionals are no strangers to ever-evolving legislation and guidance, however, it seemed appropriate to split the changes over the two tax years that will be most affected.


Tax year 2022/23

In tax year 2022/23, all systems will need to be developed and updated to reflect the additional 1.25% increase to the NIC calculation. The increase in NIC rates will result in employees who earn above the primary threshold to the upper earnings limit (UEL) paying 13.25% in NIC contributions, with those above the UEL paying at a rate of 3.25%. Employer class 1 NICs will also increase to 15.05% based on an employee’s NICable earnings above the secondary threshold.

In addition, any benefits provided that attract class 1A NICs which are awarded in the tax year 2022/23 will be increased to 15.05%. As the increase is encapsulated within the class 1A calculation, the levy will be processed in the same manner – via a P11DB in the following tax year (2023/24). The same will apply when payment of class 1B NICs are calculated in relation to expenses processed via a PAYE settlement agreement (PSA).

There will be an increase for those who are liable to play class 4 NICs, namely those who are self-employed. This will see class 4 NICs rise to 10.25% on profits between £9,569 and £50,270 and 3.25% on profits thereafter.

From a processing point of view, this change is quite simple – the amount that NICs are calculated by will simply increase by 1.25% across all amounts that are subject to NIC deductions, however, software providers will be busy behind the scenes ensuring that updates are made so the new calculations can be actioned.

The levy will also apply to the self-employed who receive dividends, seeing this increase to 8.75% for basic rate taxpayers.

Her Majesty’s Revenue and Customs (HMRC) has advised, that although it is not legally required, employers should state on employee payslips that the increase to NICs is due to the levy.

Emailing employees or issuing a letter prior to the start of the tax year advising them that their NICs will rise from April 2022 due to the levy would be best practice and could result in fewer queries for the payroll team. Advising other departments that headcount costs will increase would be a proactive step to take, highlighting payroll’s strategic value.


Tax 2023/24

This tax year will see the NIC rates revert to those in operation in tax year 2021/22 and the levy will be calculated and collected in isolation.

The information that has been presented so far insinuates that the levy calculation will align with the NI thresholds operated within that tax year, meaning that if an employee is subject to pay class 1 NICs, then the levy will also be due. One of the substantial changes for tax year 2023/24 (and those going forward) is that employees who are of state pension age or above and receiving earnings from paid work will also be liable to pay the levy charge.

In tax year 2023/24, the levy will need to be shown as a separate item on an employee’s payslip. This will mean software has to be updated to allow a new element to be processed, and so will real time information (RTI) data items. Employers will need to ensure that it is not included in the NICs calculation as before and that this new deduction is clear to all who it affects.

The levy charge will also be payable on class 1, class 1A and class 1B employer NICs. Class 1 employer NICs will be collected via pay as you earn (PAYE). This will also be calculated in isolation, and, as with employees, class 1 NICs, will align to the NI thresholds in operation.

It is unknown at present how class 1A and class 1B NICs will be reported, however, following the CIPP’s Annual Conference, in which we held a Q&A session with HMRC, it was suggested that current documents, such as the P11DB, will be updated so that the levy due on class 1A NICs can be reported via current methods.


Employment allowance (EA)

For the tax years studied here and for subsequent years, the levy paid will form part of the calculation which enables employers to assess if they are able to claim EA. Employers can claim EA if they are a business or charity (including community amateur sports clubs), and their employer class 1 NI liabilities were less than £100,000 in the previous tax year.

In 2022/23, the levy will form part of employer class 1 NICs, therefore it will be simple to assess if an employer is able to claim. From 2023/24, however, employers will need to add both the class 1 NICs and the levy payments together. If they are still under the £100,000 limit they can continue to claim – if they are above, then they will be unable to claim the EA.

The EA allows eligible employers to reduce their annual NICs liability by up to £4,000. From 2022/23, the levy can also be included within the £4,000.


Effects on off-payroll workers

When processing deemed employment payments for those that fall within the off-payroll working rules, the fee payer is also liable for employer NICs. In 2022/23, the levy is included within the NICs payment. In 2023/24, both the off-payroll worker and the fee payer will be liable for the levy charge, based on deemed employment payments. As with employees, this will need to be shown as a deduction in isolation on the statement provided to the off-payroll worker. Those that engage with a personal service company (PSC) will need to consider this additional cost.


What else do we need to consider?

Software providers will be busily working away behind the scenes to ensure that, for tax year 2022/23, the rate NICs are calculated on has been updated.

From 2023/24 onwards, there are many different things that need to be considered, such as the changes to stationery, how this will interact with the processing of court/attachment orders and how those that are currently processed via an expat payroll will be affected.

The guidance that we are all waiting eagerly to be published will hopefully answer the multitude of questions on everybody’s minds as to how this will be actioned in practice. As the saying goes – the devil really is in the detail. 

  Employee class 1 NICs Employer class 1, 1A & 1B NICs Self-employed class 4 NICs
Tax Year 2021/22 12% / 2% 13.8% 9% / 2%
Tax Year 2022/23 13.25% / 3.25% 15.05% 10.25% / 3.25%


NICs Employee class 1 NICs Employer class 1, 1A & 1B NICs Self-employed class 4 NICs
Tax Year 2023/24 12% / 2% 13.8% 9% / 2% 
Health and social care levy Employee Employer Self-employed
Tax year 2023/24 1.25% 1.25% 1.25%



Featured in the November 2021 issue of Professional in Payroll, Pensions and Reward. Correct at time of publication.