In the week ending 14 September, a Bill was put forward in the House of Commons regarding a health and social care levy. The levy is referred to as a 1.25% “tax” in the bill and applies to every person who is liable to Class 1 and 4 NIC, and will apply to the same earnings that are subject to NIC.
Where employees are concerned, both employees and employers will be required to pay the levy on these earnings.
The report stage and final reading of the Bill (when it becomes substantively enacted for accounting purposes) is scheduled to take place on 11 October. The levy effectively applies from 6 April 2022 with a transitional provision applied to social security regulations so that Class 1 (employees and employer’s), Class 1A, Class 1B and Class 4 NIC’s are increased by 1.25% for 2022/23.
From 6 April 2023, the NIC rates will return to those in place for 21/22, and the levy will be legislated for by a separate set of regulations/legislative provisions that are yet to be published. The levy will also apply to those who have reached the state pension age (now applicable for those who have reached the age of 66).
Expatriate considerations – internationally mobile employees (IMEs)
The levy only applies to employees whose earnings are subject to NIC
Hence, it will not apply to the earnings of IMEs who have a certificate of coverage or A1 in place, or fall outside the scope of UK social security regulations under the “first 52-week rule”.
However, there are some complexities that impacted IMEs and employers need to consider. Some of these are noted below, but there are a number of other areas affecting internationally mobile employees on which we are waiting for clarification.
Apportionment – bonuses and share related income
For employees who:-
- are paid bonuses or receive share-based income, and
- were only socially insured in the UK for part of the earnings period this income relates to,
employers need to be conscious of the portion of this income that they should apply the levy to.
In theory, if UK NIC applies to a portion of this income, the levy should also apply to this portion of income.
Policy and processes
As the levy will be payable in respect of employees that are liable to NIC only, there is little action that employers need to take to account for the “tax” payable for its IMEs (subject to updates to payroll processes and dealing with the “tax “ on non-cash benefits etc).
However, employers should consider:-
- the increased assignment costs that may arise where employees are tax equalised; and
- update policies and processes to account for grossed-up costs and hypothetical withholdings
Foreign tax credit relief
For 2022/23 the levy will be administered via an increase in NIC rates. Therefore, for that tax year, the position regarding foreign tax credit relief is clear. The levy is a social security insurance payment that is not available for credit against foreign (non-UK taxes), and it is not possible to credit foreign taxes against the levy.
However, from 6 April 2023, the position is unclear on whether:-
- the levy will be creditable against foreign taxes for employees whose earnings are subject to both the levy and non-UK income taxes, and
- foreign taxes that are creditable against UK income taxes (but exceed the marginal rate of UK tax) can be credited against the levy
The bill and guidance issued by the government on this are somewhat contradictory. The levy is referred to as a tax but will be used to fund health care and social care in the UK.
If we look at similar charges in other countries, in Germany employees make contributions into a long-term care insurance plan to provide for nursing care in old age and this is a social security insurance payment that is not creditable against UK income tax. In contrast, the Irish Universal social charge is a tax on income that is creditable against UK income tax.
Actions for employers to take
- Assess the impact of the levy on its costs of employing IMEs
- Update policies and processes to account for levy, and manage any equalisation costs
Upon further guidance from HMRC on how the levy will be legislated for from 6 April 2023 onwards, employees and employers should analyse whether it is possible to mitigate any double taxation costs arising from levy (with employers taking any necessary action to mitigate double taxation at a payroll level).
Get in touch
For further information please get in touch with a member of the Mazars UK global mobility team
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