At the end of November, the Government confirmed that there will be a 1.25 per cent tax increase for all working-age adults aimed at helping to fund the NHS and social care services in the UK.

The Health and Social Care Levy was initially mentioned before the Autumn Budget but has been confirmed in a spending plan document published by the government.

The tax hike will affect National Insurance contributions, which means that any person who sees a tax planning accountant will need to factor in potentially paying an extra 1.25 per cent in NICs from April 2022 onwards. This also affects the wage costs of employers, which means a 2.5 per cent increase in the tax rate on earnings in total.

In total, this will generate nearly £12bn to fund the NHS and social care services every year.

Here is what the tax hike will mean for your business.

Employees Pay Twice As Much As Self-Employed

Because the broad-based tax affects both employee and employer NICs, people who are fully employed will essentially pay twice as much tax as self-employed people, because the employer part of the NIC will not be levied on self-employed people.

The Tax Also Affects Dividends

Dividend tax will also be increased by the same 1.25 per cent rate, which could potentially cause business owners and investors who also take a salary to pay the employee levy, employer levy and dividend levy, although it remains to be seen how many people would be affected like this.

It Does Not Affect Landlords

Controversially, the tax levy affects employees, employers and self-employed people, including those above state pension age, but does not affect landlords, unless they also draw out dividends or hire employees.

Letting property is seen as an investment and as a result means that landlords do not pay NICs, although their tenants who work would do.