How will the Health & Social Care Levy interact with my reward strategy?

The short answer is it will increase employer costs and reduce the net employee reward.

So, broadly, this is a situation that will make both worse off, albeit, there is the long term benefit that the Levy will provide through a future defined level of Government support should health and social care be required.

What will the Health & Social Care Levy affect?

Initially, the Health & Social Care Levy will be a 1.25 percentage point increase in employee and employer NIC in the tax year 2022-23. It will then be separately identified as the Health & Social Care Levy from April 2023 and continue to be an additional cost of 1.25 percentage points for both employer and employee.

This additional cost will be payable by all employees earning above the NIC primary earnings threshold and by all employers (subject to certain reliefs). It will be an amount due on all pay received but also be paid on taxable benefits and expenses reported via Form P11D and the PAYE Settlement Agreement.

Therefore it will cost businesses more to provide taxable benefits like cars, medical insurance, staff entertainment and gifts.

What can businesses do?

Employers may therefore want to review their reward to:

  • Consider if the reward is still valued by employees - i.e. is the car scheme fit for purpose, is an employee canteen or free car parking still seen as a perk, have employee needs changed as a result of the pandemic?
  • Change the type of reward - for example, move from diesel to electric cars, enhanced use of sustainable benefits (electric bikes, home energy support, working from home allowances, solar panels, EV charging points), utilise different tax-free benefits such as interest-free loans up to £10,000.
  • Introduce new skills and apprenticeship training programmes to help recruit, retain key talent and utilise levy/government incentives.

These factors may help employers keep their reward platforms attractive to employees whilst also managing costs and utilising tax exemptions where possible in order to maximise the cost-effectiveness of the benefit. This can also reduce your staff turnover, which may be of increasing importance given the range of skills shortages the economy is currently experiencing.

Further, as there is a greater focus by HMRC on investigating non-compliance, employers should review controls and procedures around current benefit, expense and salary sacrifice arrangements (Pension, Car, cycle to work, holiday) to ensure no liabilities could arise from underpayments in PAYE & NIC.

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We are helping many organisations review their compliance with employment tax and overall employment costs and employee reward strategy so please do get in touch and contact us using the details below if you would like to discuss further. 

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