Tax

Social Care Levy

The Social Care Levy is set to fall on individuals with earned and dividend income. The biggest impact will be seen by directors of Owner Managed businesses. We help business owners understand, quantify and plan for changes.

The Tax impacts explained

For the 2022/23 tax year the social care levy will based on National Insurance contributions and will impact employers and employees. 

There has also been an  increase in the tax on dividend income of 1.25% across all rate bands.

From the 2023/24 tax year the social care levy will be removed from National Insurance and set up as a separate, ring-fenced tax the government can adjust independently. 

Business Owners Employees Self-employed/Partners
Salaries Paid 1.25% n/a n/a
Salary/Income Received 1.25% 1.25% 1.25%
Total increase in tax paid on earned/paid income 2.5% 1.25% 1.25%
Dividends Received (regardless of source) 1.25% 1.25% 1.25%

At the moment, the tax changes appear to fall most heavily on Owner Managed businesses.   Directors will be hit with increases to National Insurance on payroll as well as an increases in tax on remuneration taken as salary and dividends.

Planning opportunities remain broadly similar:

  • Reducing salary costs through salary sacrifice contributions to pensions. 
  • Using Company contributions to Directors' pensions as an efficient method of extracting wealth and providing security for the future.
  • Use of Employee Share options as opposed to Restricted Stock units as incentives.
  • For current spending needs, business owners are likely to continue to favour dividend income.

The Websters team of accountants, personal tax specialists, legal and financial advisers is able to provide assistance in the planning and implementation of  remuneration strategies that include dividends, payroll, pensions, cash flow management and more.

It is unclear how the new levy will interact with salary sacrifice from 2023 when it is removed from the National Insurace link.