UK Tax Update: The Health and Social Care Levy

By Martin Rimmer, Head of Tax at Select Investors, a Partner Practice of St. James’s Place (Singapore) Private Limited

In a statement to the House of Commons on 7th September, Boris Johnson announced the implementation of the Health and Social Care Levy, which will begin to apply from 1st April 2022. The purpose of the levy is a laudable one, providing extra ringfenced funding (estimated at GBP 36bn over the first three years) to front-line NHS operations, including nurses’ salaries. No one can reasonably deny that the response of the frontline NHS to Covid-19 has been heroic and so it is hard to criticise this move.

The HSC Levy will apply a 1.25% surcharge on current levels of employees and employers National Insurance rates, so as to ensure that both businesses and individuals make an equal contribution. Whilst this looks like an increase in National Insurance, from April 2023 it will be a standalone levy on earned income, operating alongside National Insurance and Income Tax. The levy will apply to any earned income which is liable to National Insurance, including the salaries of those who work past State Pension age.

However, in a swipe at business owners and investors, the Government will also be increasing all rates of Income Tax on dividends by the same amount, 1.25%, from April 2022. It was not clear from the announcement whether these additional revenues will be directed to the NHS or not, or whether the rate change also applies to foreign dividends taxable in the UK.

At this stage, it is intended that the Health and Social Levy will only apply in England but the dividend rate rise will apply throughout the whole of the United Kingdom. It is also key to note the marginal combined rates are not the effective rates when allowances and thresholds are considered.

The effect of this change will take the marginal combined Income Tax, National Insurance and Health and Social Care Levy in England to:
o    33.25% for a Basic Rate Taxpayer
o    43.25% for a Higher Rate Taxpayer
o    48.25% for an Additional Higher Rate Taxpayer, and
o    An eyewatering 63.25% for those with taxable incomes of between GBP 100,000 and GBP 125,140

The rates of Income Tax on dividends will rise to the following from 6th April 2022:
o    8.75% for a Basic Rate Taxpayer
o    33.75% for a Higher Rate Taxpayer. And
o    39.35% for an Additional Higher Rate Taxpayer

How does this affect us in Singapore? Firstly, you will only be affected by the Health and Social Care Levy if you are liable to National Insurance on your professional incomes. That is unlikely for most people here, but not out of bounds of possibility for some, especially those who might operate a trade in the UK or have arrived in Singapore recently on secondment from the UK. We will, however, be subject to additional rates of tax on dividends arising from UK sources whilst we are in Singapore.

Those planning to move back to the UK and continue work, will be affected on professional incomes arising after return. This does of course make the need for intelligent and straightforward tax planning all the more important. There are steps you can take to drive tax rates down heavily ahead of a return to the UK, which were recently presented during a British Chamber of Commerce Webinar on Planning for a Smooth and Tax Efficient Move to the UK. ***to be hyperlinked to the BritCham & Select UK repat webinar ***.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested. Select Investors is a Partner Practice of St. James’s Place (Singapore) Private Limited.

Martin has a degree in German with Economics and International Business, and holds the ATT qualification (Association of Taxation Technicians) in the UK. He has held a number of roles including Tax Manager, responsible for the UK taxation advice and compliance of clients.  With nearly 20 years of experience dealing with International Private Clients, Martin is skilled at expressing his advanced technical knowledge in understandable terms, building relationships with clients and gaining their trust.  He regularly delivers tax workshops and seminars, and provides technical updates and briefing notes for a diverse range of clients.