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Funding social care –sharing the burden?

Article Date: 08 September 2021

Funding social care –sharing the burden?

 

Solving the problem of who pays for social care was never going to be easy, but yesterday Boris Johnson put forward his plan to not only address this issue, but to also provide extra funding to the NHS.  The message was that if we want a fairer and better care system, we would all need to contribute.

 

The announcement of tax rises on Tuesday broke a fundamental election promise by the Conservatives, but their argument is that the pandemic is an extraordinary event, which could not have been foreseen and therefore requires difficult decisions to be made.    As the new policies seek to address the long standing problem of how we pay for the care of some of our most vulnerable population, people might argue that the tax rises are therefore not the result of the effects of Covid.

 

Initially the majority of the funds will be spent clearing the waiting list backlog in the NHS caused by the pandemic.  In theory this sounds sensible but we are waiting to see how it will be guaranteed that the money will be directed in an efficient manner.  Furthermore if the health service is still having problems by 2025, the date the use of the levy should switch to funding social care, will it really be that easy to turn off this source of funding.  Even once the main allocation goes to social care, there are doubts that the policy will address some of the fundamental concerns such as preventing individuals from having to sell their family home.

 

The wide-ranging nature of the proposed tax increases surprised many.  Having considered different types of tax, the government concluded that only a rise in National Insurance would generate sufficient revenues.  This suggests that purely employment income will be affected, but dividends will also see a higher level of taxation.  

 

There remain details that need clarification but the headline measures are as follows:

 

1.25% increase in Employee’s NI from April 2022

This would mean that a worker on £30,000 PA would see a reduction in their disposable income of an estimated £255.  The Prime Minister has stated that those that earn more will pay more.  This may be true in absolute terms but in reality even a small reduction in take home pay for a lower paid worker makes a big difference to their spending ability.

 

1.25% increase in Employer’s NI also from April 2022

This is a cost you will need to take into account when preparing your budgets later this year but you will also have to consider how it will affect your wider decision making in relation to human capital costs.  Will this affect whether you decide to give payrises to your existing workers or take on additional staff?  It may be a good time to consider whether there are alternative ways to remunerate and incentivise your team which attract a lower tax burden.

 

Increase in tax rate applying to dividends of 1.25% from April 2022 

Although dividends are still likely to be a more efficient remuneration route than salary, it will be worth considering the voting of a dividend in say March 2022 to beat the increase.  The downside to this is that you will bring forward the date you pay any tax by 12 months compared to if you waited until the end of April.  If you hold shares apart from in your personal company, moving the holdings into an ISA may be an option to mitigate the tax cost.

 

Disclosure of the additional amounts paid changing from National Insurance to Health and Social Care Levy from April 2023. 

Although purely a presentational matter, your payroll software will need to be updated to ensure payslips are correct.  This change is meant to emphasise that the amount being paid is ring fenced for its intended purpose and therefore make the tax rise more palatable. 

 

From April 2023 levy will apply to workers above state pension age who wouldn’t normally pay NI. 

This will impact both your business and the individuals involved and again payroll updates will be required. 

 

Big questions remain.  We will have the highest tax burden since the Second World War yet businesses haven’t seen the end of the economic effects of the pandemic.  Even if we accept that we need to contribute more as individuals and businesses to care costs, is now the right time to implement these changes or should we concentrate on building economic stability first.

 

The Chancellor has announced that the next Budget will be held on 27 October and by then we should have more detail of the implementation of these policies.  If you would like to discuss how you should prepare for the changes, please get in contact with me at michelle.malone@ase-global.com.

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