Sage New Health and Social Care Levy means for Employers
The Health and Social Care-HSC was announced in September 2021 by the UK government. The change in taxation leading to the introduction of the levy offers an opportunity that empowers and educates the employees when it comes to salary payments. This allows the employees to be more in control.
In this blog, we will be highlighting the importance and the details of the latest Sage New Health and Social Care Levy and what is covered. Here we will also learn what it implies to the National Insurance Contributions and the importance it has for you and your employees.
The Health and Social Care Levy: What is it all about?
Essentially, the HSC Levy is the latest, additional type of personal Income tax. It is the ‘earnings’ that is the chief way that it is funded. It also comprises Deductions Via PAYE for full-time employees. Essentially, one can pay the Levy by the majority of the UK’s working population. The difference is that, unlike the other tax increment, it impacts most of the salary grades for people who are above 25 years of age. The Levy is quite similar to the current National Insurance-NI, both in form and function. It has also been funded by an increase to NI contributions-NICs in the first year which is the 2022/23 tax year.
Nevertheless, there are quite a few differences that essentially make it quite different from the NI, hence one must take this into account as well. Let us discuss this in detail in this article.
In the case of the HSC Levy, it is also partly funded through an increase in the dividend tax. This is essentially what majorly affects those people who take dividends from the companies. Essentially this does not affect the payroll for most employees. However, it can affect those people who own their own company for which they are the only employees and also take dividends in addition to the salary.
Read More-: Self-Employed Taxes for Dummies
The Health and Social Care Levy: What Does it Cover?
The HSC levy is the latest and permanent tax that intends to pay for the increasing NHS costs. This is in addition to the increase in the cost of adult social care. However, the government does not assume that these can be covered by the increases in borrowing. Hence a third type of income tax is introduced that eventually runs along with the tax and National Insurance deductions.
2022-2023: HSC Levy’s Increase in National Insurance Contributions
In the current scenario, the HSC levy will be introduced as of April 2022. During the first year, till April 2023, the HSC levy is funded by a temporary increase in the National Insurance Contributions. By the second year and beyond, i.e. by April 2023, it will be stated on the Wage slips and also within the payroll software. It is depicted as a separate deduction along with the income tax and also National Insurance.
An increase of 1.25% is observed both in employer and employee National Insurance contributions-NICs. This brings it to a total of 2.5% for every employee. This essentially implies that the employee pay cut is almost 1.25% and the cost of the payroll for that employee is increased by 1.25%.
Let us take a look at the increased NICs for April 2022- April 2023:
- The Employer NICs: There is a 1.25% increase in the Class 1, 1A, 1B National Insurance Contributions -NIC rates. This can be taken up to 15.05% for the current 13.8%.
- The Employee NICs: There is a 1.25% increase in the Class 1 NIC rates. The rates can go up to 13.25% in case of the earnings fall below the NIC Upper Earnings Limit from the current 12%. This can go up to 3.25% above that limit from the current 2%.
How to Apply the HSC levy to Wages: 2023 Onwards
The Levy has increased from April 2023, there will be no implementation of the 2022/23 increase to Class 1, 1A, and 1B NIC rates. Here instead a brand new HSC levy will be brought into the picture and displayed on the payslips, and remuneration through an update done on the PAYE systems
Here are the details:
Health and Social Care-HSC Levy:
In this case, an employee contribution of 1.25% will be identified on the payslips of before-tax salary. However, the employers will be required to pay 1.25% making for an aggregate of 2.5% for every individual. The manner of processing within the payroll software is quite similar to Class 1 NIC payments.
Likewise, there are also some important details for the older employees.
Once the HASC Levy becomes a discrete tax on April 2023, it will be quite different from the National Insurance contributions. This is because it will be applicable for individuals above the state pension age, with an employment income falling above £9,568.
One should also take note of the fact that the HSC Levy does not apply to the people of pensionable age before the Levy was collected through an increase in the NICs. On the other end of the spectrum is the fact that if an employee enjoys a zero rate of secondary Class 1 NICs. In this case, the HSC levy is not applicable. For instance, the employees included in this category are the individuals under 21 years of age, and the apprentice under the age of 25 years. Moreover, there are also specific types of employees at various freeport sites and previous services employees in their first 12 months of employment that can also enjoy a zero rate of Class 1 NICs.
The impact on the Payroll for Employers: The HSC Levy
Other than the Cash flow concerns, as mentioned below, the main considerations for the employees are related to ensuring that the payroll software has been configured in time for the upcoming changes. This also includes the updates, if necessary.
As of April 2022, you need to take a look at the NI contribution categories, and the tables also included within the software that have been updated with the new rates, as mentioned above. Later in April 2023, these data need to be reverted to the existing NI rates. Also, by this time you need to make sure that the latest and current HSC levy has been applied to the salaries as and where required.
This is also important to note, as the addition of these third types of taxes is an essential change in the manner in which the payrolls are handled. Also, the payroll software might need a feature update in order to handle it.
As in the case of the Cloud Payroll Software, the update will be done within the stated time frame. However, if you are using your older desktop-based software, then you will need to apply a patch or upgrade to the latest version.
The Cash FlowConsiderations for the Employers: HSC Levy
According to your business, you can easily find that most employees are eligible for the HSC levy. This can be considered an effective 1.25% increase in the payroll costs for most businesses. Here are the aspects included within the Associated Costs:
- Updating, Reconfiguring, or Upgrading the Payroll Software: The process can be easily accomplished in-house. This comprises the case staff time and training that might be needed to be budgeted for. It can also require the assistance of an outside agency.
- Potential Increase in Pay in Order to Absorb the Cost of the 1.25% Reduction in the Salaries: As discussed earlier, there are quite a few ways in which to mitigate the influence from the Employee’s Perspective. Likewise, the pay reviews can also be moved closer to the introduction date of April 2022. This is to help manage the introduction of the levy and the impact it has.
- Communication and education among the workforce: This includes communication with the offsite employees or the other mobile workers. In this case, all the communications should be as per schedule in order to ensure proper coverage. This might also have to be done by more traditional methods like posts, which are significantly more expensive as compared to electronic communications.
- Internationally mobile workers present technically challenging issues: In this case, the assignment costs need to be monitored in case the individuals are subjected to the UK NICs. This implies that the in-bounds are not able to remain within their own country’s social security systems. Or the same implies to the on-bound remains within the NIC when working overseas. It also needs to be decided sooner or later if and how the assignment policies need to be amended in order to best be able to manage the cost of social security.
What It Means for the Employees: The HSC Levy
This implies a 1.25% cut on the application of the HSC Levy. This cut is for the take-home pay for the employees it applies to. Likewise, the businesses also need to consider folding the consideration over to the annual pay reviews. In order to help the employees better understand that Levy is not within anyone’s business control, hence it is important to empower the employees in order to gain a piece of better knowledge about their salaries with the help of tools like Mobile apps. This also allows the employees to be able to control their working hours, absences, and more.
It is advised to be able to plan the communications for all the periods leading up to the introduction of the levy. The aim is to educate the reasons for the introduction of the levy and the purpose that it serves. There are chances when the decrease in salary can be blamed on the business; here basic education can easily deal with this.
Likewise, in order to soften the blows, the business also needs to consider focussing on salary sacrifice schemes. Most employers offer pension contributions with this method. However, other schemes like vehicles for work, and training can be considered ways to reduce the taxable pay and hence reduce the HSC Levy’s influence on the salaries when delivering the desirable non-cash benefit. However, you need to keep in mind that not all salary sacrifices can be applied to reduce taxable pay.
Also Read-: How to use Form 1095-A
The HSC levy finds itself in the right time, for those businesses for people who in April 2023, find themselves facing a scheduled increase in the corporation taxes. This was announced earlier this year. However, the gap between the current times and the introduction of the Levy, both in 2022 and 2023 offers enough time to take care of your business structurally and also to prepare for the increased demand on your salary. On the flip side, it is also important to provide for your employees and needs to be addressed much ahead of time so that there are no confusion or surprises. For further information, you can visit us at www.accountingadvice.co.
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Frequently Asked Questions(FAQs)
How much is the Employer’s National Insurance in the UK?
As for the national insurance in the UK, the employers pay Class 1 A and 1B of National insurance on expenses and benefits that they offer to their employees. It is 13.8% from 6 April 2023 to 5 April 2024 for expenses and benefits
Who Pays the Levy?
The Levy is applicable for the employees and employers who pay Class 1 NIC currently.
Do the Pensioners also have to pay the Healthy and Social Care Levy?
Individuals over the state pension age will have to start paying the levy from April 2023.
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