On 8th September the UK Parliament agreed to increase taxes to fund landmark reforms of England’s adult social care system and a backlog of NHS appointments.
The rise will see the UK population suffer its highest tax burden since the 1950s and comes on the heels of corporation tax rises already announced in the March Budget. As we emerge from the other side of the pandemic it is unclear whether these tax rises will sufficiently cover the huge debt Coronavirus has saddled the UK with.
Essentially, the changes are:
How will the funds be used?
The Government says funds raised by these tax increases will be legally ring-fenced to help the NHS clear backlogs, as well as resolving long-standing issues around care costs. The announcement is the biggest shake-up of social care in decades and will provide means tested social care funding for people with assets between £20,000 and £100,000 for the first time.
Those with savings of below £20,000 will receive fully-funded care, while those with savings between £20,000 and £100,000 will be given partial support. No one will be required to pay more than £86,000 for social care in their lifetime, under a new cap introduced from October 2023. Anyone with more than £100,000 worth of assets, including property, won’t receive state support.
Currently, people with savings of more than £23,250 receive no support from the Government to pay for the cost of social care.
What will be the impact on workers?
Downing Street said that a typical basic rate taxpayer earning £24,100 would pay £180 a year, while a higher rate taxpayer on £67,100 would pay £715 as a result of the new tax.
How have businesses reacted?
The increase will be an additional cost for employers. The British Chambers of Commerce (BCC) have already declared it “a drag anchor on jobs growth” as firms emerge from the pandemic and furlough winds down. Other trade bodies have denounced it as ill-timed and illogical given the withdraw of government support packages such as the furlough scheme.
If your business has distributable cash you may wish to think about withdrawing it as bonus or dividend before the tax rise.
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