Social care tax hike heaps further pressure on business

Social care tax hike heaps further pressure on business 

The government’s tax hike to fund social care reforms is short-sighted given the challenges already facing firms, business leaders said today.

A new UK-wide 1.25 per cent health and social care levy will be introduced from April 2022, based on national insurance contributions.

The government says the move will generate £36bn towards social care reforms over the next three years in “the biggest catch-up programme in the NHS’ history.”

The levy will be paid by working adults, including people over the state pension age - unlike normal national insurance, which is not paid by pensioners. 

Initially, national insurance contributions rates will go up by 1.25 per cent.

But from April 2023, once tax systems have been updated, the levy will be separated, so that it appear separately on pay slips.

At this point working adults above state pension age will start contributing.

The government will also increase the rates of dividend tax by 1.25 per cent from April 2022.

This means 40 per cent of all businesses - mostly small firms - will not have to pay extra due to the Employment Allowance.

Larger companies will pay most of the extra revenue, coming from the increase to National Insurance contributions - with 70 per cent of the money coming from the biggest 1 per cent of employers.

Greater Birmingham Chambers of Commerce say the tax rises will take much-needed funds away from businesses who are already facing rising cost pressures.

Raj Kandola (pictured), head of policy at Greater Birmingham Chambers of Commerce, said: “Whilst we recognise the need to tackle the problems at the heart of the country’s social care system, introducing a national insurance uplift and surcharge on dividend income feels short-sighted given the severe challenges businesses are facing right now.

“As research from our Quarterly Business Report has consistently shown, many businesses are still facing crippling cost pressures and the last thing firms need is a tax hike which will again take much-needed cash away from investment in staff and technology.

“This is also a demoralising blow for sole traders who will suffer as a result of the new rules related to dividend tax, especially as many missed out on financial support during the pandemic.

“We would urge the Government to use this time to give businesses the confidence they need to move forward and set out a plan which will focus on mitigating Covid-19 related risks whilst also creating an environment that encourages investment and growth.”

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