The recent 1.25% national insurance rise will be reversed in November and the Health and Social Care Levy will be scrapped, the Treasury has announced.
In April, employers’ and employees’ national insurance contributions (NICs) were increased by 1.25% to help fund the growing health and social care bill.
NICs were set to return to 2021-22 levels in April 2023, when the separate 1.25% Health and Social Care Levy was due to be introduced as a separate line on employees’ payslips.
However, today (22 September), the government said it would reduce NICs to their previous level and scrap the levy via the Health and Social Care Levy (Repeal) Bill, which has been presented to the House of Commons.
The levy was expected to raise around £13 billion a year to fund the NHS and social care. The government will instead maintain this level of funding via general taxation.
Employees will receive a cut to their NICs in their November pay, but some are likely to receive it in December or January depending on the complexity of their employer’s payroll software.
The government announcement also suggests that employees would be eligible for a NICs “refund”, stating that “individuals should contact their employer for refunds as a first port of call in all circumstances, [but there] there may be circumstances where individuals may need to apply to HMRC for a refund. For example, if their employer is no longer trading, or if an individual has moved roles and their previous employer has confirmed they are unable to issue a refund retrospectively themselves”.
Chancellor Kwasi Kwarteng said: “Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.
“Cutting tax is crucial to this – and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the Levy will help them grow, whilst also allowing the British public to keep more of what they earn.”
The Treasury claimed around 920,000 businesses would benefit from the tax reduction from November, saving them an estimated £10,000 a year that they can invest “as they choose”.
Some 20,000 organisations will be taken out of paying NI entirely due to the employment allowance, which rose in April 2022 from £4,000 to £5,000.
The tax cut will save nearly 28 million people an average of £330 per year, the Treasury said.
Steve Herbert, wellbeing and benefits director at consultancy Partners&, said it was unclear whether “reversed” meant employees and employers would receive backdated payments for the higher rate levied since April 2022.
“[It] will be difficult to back-age given the way NI deductions are made,” he said in a LinkedIn post. “[It] will save [the] higher rate taxpayer more than basic rate, but [is] a significant cost saving to employers (assuming the reversal is extended to employers).”
Seb Maley, CEO at Qdos, an organisation that provides tax insurance for freelance workers, said: “This is a bold statement from the Chancellor and new Prime Minister, who seem to be setting out their stall as a government intent on cutting taxes from the word go. It is a step in the right direction for self-employed workers, millions of whom have been on the receiving end of short-sighted and potentially sector-threatening tax hikes in recent years.”