What does the introduction of the “Health and Social Care Levy” tell us about the future of employment taxes?

By now, the headline details of the Health and Social Care Levy (“HSCL”) should be familiar. A levy of 1.25% will be introduced from April next year with a view that it will be ring fenced for “Social Care” in particular.

In order to give HMRC sufficient time to get their IT infrastructure in place, this will be collected via the National Insurance system from April 2022, with a separate liability being levied from April 2023.

Full details of the workings of the new system are not yet available, but HMRC have indicated that they will simply copy wholesale the current National Insurance legislation.  We expect more details when the Autumn Budget is announced on October 27^th.

In the very short term, one commercial consideration employers might want to check is whether bonus payments (particularly for the year ending December 2021) fall for payment before or after 6 April 2022.

Where bonuses figures are substantial – a moving forward of bonus payments may be considered appropriate.  However, companies will need to check that they have the ability to do so – even if there are no formal rules stopping bonus payments being made early, the practicalities, if not addressed now, may mean that calculating bonuses to make a March payroll is not feasible. (As an aside, individuals who are paid a salary around the £100k mark may wish to consider whether bringing forward a bonus payment into this tax year would give them wider tax issues.  If in doubt, a suitable advisor should be consulted).

In the longer term, it is intriguing to understand why a separate pot of money has been created – given that National Insurance is already the main source of funding for Social Care currently.  If one goes back to the establishment of National Insurance in 1911, there was meant to be a direct connection between payments into the pot and monies being taken out to cover sickness and times of unemployment.  This position has eroded over time and the pot is used for much wider matters.  It is likely that any new Health and Social Care pot will be similarly vague – despite the initial intention for it to be ringfenced for this specific purpose.

One other consequence – and we will have to see whether it is intended or unintended – is that the creation of a separate system does mean that different rules could start to apply in the future.  To take one example, currently Employer’s National Insurance can be passed over to employees (with agreement) on share option awards.  Would a future government perhaps allow this for National Insurance purposes, but not Social Care – or indeed the other way around.

We at MM&K will be watching this area closely and companies should consider how the introduction of the HSCL might affect the way that they set up their remuneration structures.

If you would like further information about the issues raised in this article or to discuss any questions you may have, please contact Stuart James.

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