The NIC increase from 6 April 2022 may seem relatively straightforward to apply to your payroll but, because of the way the new Health and Social Care Levy (HSCL) is being introduced there are a number of pitfalls for the unwary.
NIC rates for 2022/23 will see an interim increase pending the full introduction of the HSCL from April 2023 (when NIC rates themselves will return to 2021/22 levels). Here are 10 key points for businesses to look out for under the new levy:
1. Increased payroll costs: employers will be well aware that the 1.25% increase in their costs will come at the same time that increases in the National minimum wage have to be funded – read more on ways to manage payroll costs here.
2. Reduced take home pay for employees: in addition to the “cost of living crisis” losing just 1.25% of take-home pay will be keenly felt by employees and may need to higher wage demands and or increased staff turnover. Where any employees’ contracts require them to be paid on a “net pay basis” employers will be obliged to make good the shortfall anyway - adding further to employer costs.
3. ‘Sacrificed’ salary will not be liable to the levy: so salary exchange/sacrifice arrangements with employees for pension contributions will become even more attractive to all parties. For employers with existing arrangements in place, both the scheme documents and payroll processing will need to be updated to reflect the levy.
4. Non-cash benefits under P11Ds and PSAs are affected: as an increase in NIC, there is an increase on employer NIC on P11D benefits and settlement agreement payments and when the levy is a standalone charge it will continue to be charged on benefits attracting an employer NIC liability.
5. Indemnities on employment matters: where a sale or purchase of a business is underway, it should be made clear in the transaction documents that indemnities on employment matters also include the levy.
6. Labour supply agreements: contracts for temporary workers and contractors (including agency agreements) will need to make reference to who is responsible for paying the levy.
In 2022/23 only, when the levy is in effect an increase in NIC rather than a stand-alone charge, it is important to remember that:
7. Internationally mobile employees: certificates of coverage and other NIC-specific measures for internationally mobile employees will be relevant for just 2022/23.
8. Employee share schemes: NIC elections transferring employer NIC to the employee under certain employee share schemes or agreements for the employee to meet the employer’s liability (and the associated allowable income tax deduction) will include the extra charge for relevant events in 2022/23. Employers should consider amending share plan documentation to include the levy from 2023/24.
9. Uncertain Tax Treatments: the notification regime takes effect from April 2022 for PAYE and associated NIC costs, therefore, the extra charge is in scope for 2022/23. However, currently it is not expected to be in scope when the HSCL is introduced as a standalone levy from 2023/24.
10. Settlements with HMRC: payments agreed following an enquiry that include NIC on grossed-up tax will include the extra charge for settlements agreed between 6 April 2022 and 5 April 2023. Again, it is not expected the HSCL will be included in settlements agreed after 5 April 2023 (in the same way as the Apprenticeship Levy is not included).
Finally, some good news: as NIC is not within the scope of the Senior Accounting Officer (SAO) regime (and neither is the Apprenticeship Levy), the HSC Levy will be out of SAO scope for 2022/23 and expected to remain out of scope when it it’s a separate charge.
For help and advice on preparing for the NIC increase and HSCL please contact Caroline Harwood or Rob Woodward.
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