Autumn Budget 2021: Employment tax changes

The autumn Budget was reasonably light on employment tax changes, with the Chancellor opting to focus on more economy boosting activities. Here are the two key changes that employers should be thinking about. 

Health and social care levy

The government has announced a new Health and Social Care Levy to pay for reforms to the care sector and NHS funding in England.

The levy will apply to earnings from April 2022, although will operate slightly differently in the tax year 2022/23 compared to future tax years.

From April 2022, the levy will see an increase of 1.25% on the rates of:

• Class 1 Primary (employee) and Secondary (employer) National Insurance Contributions on earnings
• Class 1A and Class 1B Contributions paid by employers on benefits provided to employees
• Class 4 National Insurance Contributions paid by the self-employed on profits.

In 2022/23, this will operate as a simple increase of the National Insurance Contributions rates, so only those liable to pay National Insurance Contributions will be subject to the levy.

From 2023/24 onwards (once HMRC have developed new systems) the levy will operate as a separate payment to National Insurance Contributions, and it will also apply to those above the State Pension age, which is currently not the case for Class 1 Primary and Class 4 National Insurance Contributions. 

Existing reliefs for Class 1 Secondary National Insurance Contributions will also apply to the new levy for employers of apprentices under the age of 25, all employees under the age of 21, veterans, and new employees in Freeports (from April 2022). The levy deduction will appear separately on employee payslips.

National Living Wage 

The government has confirmed that the National Living Wage will rise in April 2022 from £8.91 to £9.50.

The Low Pay Commission recommended to the government the 6.6% rise for those aged 23 and over. This represents a rise of over £1,000 a year for a full-time worker.

In addition, the National Minimum Wage for younger workers rises as follows:

• Aged 21 to 22          £8.36 to £9.18
• Aged 18 to 20          £6.56 to £6.83
• Aged under 18         £4.62 to £4.81
• Apprentice rate        £4.30 to £4.81

The above increases will benefit over two million lower paid workers.