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New Health & Social Care Levy announced
WHAT DOES THIS MEAN FOR EMPLOYERS?
ON 7 SEPTEMBER, the UK Government announced they will temporarily increase the rates of National Insurance Contributions (NICs) throughout the UK.
The rates of class 1 NIC (paid by employees and employers), class 4 NIC (paid by self-employed), and dividend taxes will all increase by 1.25% for the 2022/2023 tax year, effective from April 2022.
The voluntary NIC payments, class 2 and class 3, used to top up gaps for state pension purposes, will remain unaffected by the new announcement.
The class 1 NIC increase will apply to the employees’ NIC element as well as the secondary employers’ element. For employers, the increase will also apply to:
• class 1A NIC on benefits and termination payments exceeding £30,000, and;
• class 1B NIC on items included in a PAYE Settlement Agreement (PSA).
What does this mean for employers?
The increases in class 1 NIC will result in inflated employer costs and will need to be factored into both budgets and forecasts, especially as employment costs are typically a business’ largest expenditure.
Employers are still of course recovering from the impact of the pandemic and the subsequent downturn in operations, with further staff cuts likely resulting from the end of the Job Retention Scheme (JRS) on 30 September 2021.This will no doubt add to their burdens.
To help mitigate the cost impact of the rising rates, employers may consider adjustments to employee salaries or customer pricing.
Our recommendation
If not already in place, Salary Sacrifice schemes would be well-worth considering. Despite the UK Government’s withdrawal of some tax and NIC incentives in April 2017, some benefits still remain which attract generous tax and NIC reliefs under salary sacrifice arrangements, these being:
• Employer pension contributions
• Ultra-low emissions cars, with CO2 emissions of up to 75g/km
• Equipment under cycle-to-work schemes
These areas provide opportunities for significant employer and employee savings and the latest NIC rate increases provides opportunity for further savings. We are seeing an increasing number of businesses use salary sacrifice to optimise the remuneration package leading to improvements in employee attraction and retention.
As we move towards seeking more green energy alternatives, ultra-low emissions vehicles provided under a salary sacrifice arrangement are becoming increasingly attractive bearing in mind the low ‘Benefit in Kind’ tax rates applied for such vehicles.
