How will the National Insurance rise affect domestic employers?
We answer your questions on the government’s new health and social care tax and how this will impact domestic and household employment costs.
What is the new health and social care tax?
On Tuesday (07/09) Boris Johnson announced a new health and social care tax to help the NHS recover from the Covid pandemic and improve social care in England.
How much will this tax cost domestic employers?
National Insurance contributions (NICs) will increase by 1.25% for one year only for employees, employers and the self-employed from April 2022.
This means the employee’s NICs will increase by 1.25% from April 2022 and the employer’s NICs will increase by 1.25%.
How does this new tax impact NET salary arrangements?
The employee’s take home pay will remain the same however this means the amount the employer pays to HMRC will increase. As the tax increase also affects the employer’s NIC, this side of the employer’s costs will increase by a further 1.25% as well.
Therefore for employees on a net salary agreement, the employer will be impacted by a 2.5% increase on NICs from the employer and employee’s side collectively.
How does this new tax impact GROSS salary arrangements?
The employee’s take home pay will decrease as the amount the employer pays to HMRC for their employee’s NICs will increase. The employer wouldn’t be paying for the increase in the employee’s NICs as this would impact their employee’s take home pay. However, the tax increase does affect the employer’s NICs so the employer’s costs will still increase by 1.25% on a gross arrangement.
Will domestic employers be responsible for paying these additional costs?
For the employee’s NICs, if the nanny employer has agreed a gross salary the employee’s take home pay will be less (so the nanny is paying for their additional tax). However if the employer has agreed a net salary then they will be liable to pay their employee’s 1.25% increase.
The employer’s NICs will increase by 1.25% from April 2022 for all employers, including domestic employers, regardless of whether a net or gross salary has been agreed.
When will this new tax come into effect?
This will come into effect for employees, employers and the self-employed from April 2022. From April 2023 National Insurance will return to current rates and a new health and social care tax will be introduced.
How will this be displayed on my employee’s payslips?
From April 2022, the payslip will remain the same and the new tax will appear within the NIC contributions.
It will appear on payslips from April 2023 as a new line named “Health and Social Care levy”.
On Stafftax payslips, the employee’s NICs can be found under Deductions: National Insurance. The employer’s NICs can be found under This Period: Employer’s NI.
For more information please visit GOV.UK and search for ‘Our Plan for Health and Social Care‘.