care
Jane Imrie

"Surprisingly radical" and a "tax experiment": Businesses react to the new Health and Social Care Levy

The government has this week announced the introduction of a Health and Social Care Levy.

The new initiative will see National Insurance rise by 1.25 per cent, in order to pay for social care across the country.

Business leaders throughout the North East, Yorkshire and London have reacted to the news and shared what it could mean for SMEs.

Nigel Morris, tax director at MHA

“The government has taken a surprisingly radical approach to the tax system with the ‘Health and Social Care Levy.’ The levy is really a bundle of different measures that would usually be implemented separately.

“It involves a rise in national insurance contributions (NIC), then applies NIC to those over pensionable age who do not pay NIC normally and then turns into a levy on share dividends, generally nothing to do with NIC at all.

“Explicitly ring-fencing a tax for a specific purpose is also an usual measure. If it is adopted by Parliament, it would be unsurprising to see future tax or NIC increases being ring-fenced in an unexpected way.

“In short, this could be a sign of things to come, with the structure of the tax system shaken up. We could be in store for some more tax experiments.”

Paul Dickson, CEO and managing partner at Armstrong Watson

“This increase in NI will have a big impact on business.  It is effectively a tax on businesses for employing people.  It will create a significant additional burden at a time when they will be dealing with the aftermath of the pandemic.

“Not only are businesses trying to navigate out of the economic fallout of the pandemic, they are also facing greater costs, and now they are being hit with a tax because they employ people.

“There is no correlation to profits. If a business was making more profit, then I think increasing tax by 1.5 per cent would be more bearable, but it isn’t, this announcement taxes businesses based on their salary bill.

“This increase in NIC will discourage the creation of new jobs and will potentially put some positions at risk. The government should be looking at how they can support businesses to create jobs, thereby creating more wealth to be taxed.”

Martin Hathaway, director at Mid Yorkshire Chamber of Commerce

“The announcement of the new health and social care tax will be a tough cost for businesses to absorb, with many still facing uncertain and challenging circumstances as a result of the pandemic and fallout from Brexit.

“Businesses in our region are still facing very real supply chain issues as well as inflationary pressures and a significant number have taken out loans to see them through the pandemic.

“This additional cost could further push these firms into debt and uncertainty.”

Stephen Harris, Associate Tax Director at Azets

“1.25 per cent represents a significant tax rate hike and will have a meaningful impact on SMEs as they continue to rebuild from the pandemic and pivot their businesses in the post-Covid world.

“For SMEs, there is now even more of a need to focus on NI strategies, such as salary sacrifice measures that could provide businesses and individuals with tax savings.

“This increase in National Insurance (NI) tax will impact the younger population more severely than older generations, at a time when the unemployment rate among under-25s is already rising.

“Any additional costs for businesses will hinder their recovery and future growth, capping recruitment, investment and training opportunities at a truly pivotal time for the Yorkshire economy.

“Businesses need stability now more than ever and we need assurances that this is not the first of many more tax rises in the coming years.”

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