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Some of Europe's brightest legal minds look at the tax issues across Europe which could impact multinational businesses.

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Health and Social Care Levy of 1.25% hits employment income at 2.5%

The UK Government announced its "Build Back Better" plan for health and social care, including a funding proposal based on the introduction of a 1.25% Health and Social Care Levy plus an increase in dividend taxation by 1.25 percentage points. The slogan - which may be familiar from the Biden administration's "Build Back Better Agenda" - has previously caused controversy as Prime Minister Boris Johnson claimed, during the G7 meeting in February 2021, that President Biden had "nicked" it from the UK. But the funding proposal - to be voted on today by the UK's Parliament - is likely to be more controversial, given that, in the run-up to its announcement, resistance to a rise in national insurance contributions (NICs) had been signalled from across the political spectrum.

What was announced?

The Health and Social Care Levy (to "be legislated for shortly") will be introduced in two stages:

  • From April 2022, the rate at which each of primary Class 1 NICs, secondary Class 1 employer NICs and Class 4 self-employed NICs are levied will be increased by 1.25 percentage points.
  • From April 2023, this increase in NICs will be reversed and replaced with a new levy calculated and charged on the same basis.

Dividend tax rates will also be increased by 1.25 percentage points from April 2022.

Basic rate

Higher rate

Additional rate

Current rate




From April 2022




The dividend tax rate increase will be scored as part of the Budget which is scheduled to take place on 27 October 2021 and legislated for in Finance Bill 2022.

What does it mean?

The reference to an increase in NICs by 1.25 percentage points has been widely cited in the press, but it obscures an important difference in outcome for employment income and income from self-employment (which was noted in the IFS's initial response). Employment income will be subject to the increase twice - because both primary employee NICs and secondary employer NICs are increased - whereas income from self-employment will be subject to the increase only once. So, the total increase in tax on employment income would be 2.5 percentage points (rather than 1.25 percentage points as the headlines might suggest).

Of course, only a 1.25 percentage point increase would be suffered directly by the individual employee, and this half of the total increase in tax burden on employment income is what the Treasury's illustrative impact analysis focuses on exclusively, stating that: "The impact of the increase in employer NICs is not captured here...Whether, how, and when employers will pass on the impact of this is unclear, particularly in the short run; businesses may choose to adjust wages, prices, or profits, for example, and the distributional impact of each of these can vary."

This is quite unfortunate; it seems likely that the measure will put further pressure on the self-employed/employee distinction, an area in which the Government is already expending significant resources to combat potential avoidance activity.

Perhaps something more will be said as part of the Budget - the illustrative impact analysis envisages that "initial estimates will be refined as further modelling is done to understand the impacts of additional tax and spend. A full distributional analysis, showing the impacts of all tax and spending decisions (including this package), will be published alongside the upcoming Budget and Spending Review."


slaughterandmay, tvelling, uk tax, nics, national insurance, dividend tax, health and social care levy