Skip to content 
The concept of a Health and Social Care Levy has returned to the spotlight, not through a formal tax, but through significant changes to National Insurance Contributions (NICs) that come into effect from April 2025. Although the original levy was scrapped before its official launch, the new NIC structure effectively reintroduces its financial impact, particularly for employers. This guide explains what has changed, who is affected, and how businesses should respond.
The Original Levy: A Brief Background
The Health and Social Care Levy was originally introduced as a separate 1.25% tax intended to fund NHS and social care services. It was meant to apply across a wide range of earnings and contributors, including working pensioners. However, due to shifting government priorities and public concern over tax increases, the levy was officially cancelled before implementation. In its place, a new approach to funding health and social care was promised, primarily through existing tax mechanisms.
The 2025/26 Changes: A Levy in All But Name
Starting from April 2025, the structure of employer National Insurance contributions has been significantly altered. The employer NIC rate has been increased to 15%, up from 13.8%, and the earnings threshold at which employers begin paying NICs has been lowered. These changes dramatically increase the tax burden on employers, effectively reinstating the same funding objectives originally tied to the levy.
Although no new tax has been introduced under the title of a “levy,” the impact is the same. Employers will face higher costs for each employee on their payroll, with the proceeds directed toward supporting the UK’s health and social care systems.
How the Changes Affect Employers
From April 2025, employers must pay 15% National Insurance on employees’ earnings above a much lower threshold. The secondary threshold, which determines when employer NICs start, has been reduced significantly. This change increases the liability for nearly all employers, particularly those with low-paid or part-time workers.
Businesses that rely on staff-heavy models—such as those in retail, hospitality, care, and education—will see the largest increases in their employer NIC bills. Even organisations that previously operated near break-even margins may now find themselves facing unsustainable costs unless adjustments are made.
What’s Happening with Employee and Self-Employed NICs
For employees, the 2025/26 NIC structure continues the trend of lower contribution rates. The standard employee rate remains at 8% for earnings between the lower earnings limit and the upper threshold, with a 2% rate applying above that.
Self-employed individuals now pay Class 4 NICs at lower rates as well, with Class 2 NICs fully abolished. These changes simplify the self-employed system but come with the need to monitor entitlements to state benefits, particularly for those choosing not to make voluntary contributions.
Wider Impact on Health and Social Care Providers
While public sector bodies like NHS trusts may be exempt from some of these NIC increases, private sector organisations—including care homes, GP practices, and charities—are not. These groups face significant cost increases that may lead to service reductions, staff cutbacks, or restructuring.
Organisations in the health and social care sector that are not funded directly by central government will be under pressure to absorb these additional costs or find ways to pass them on through higher service charges or reduced staffing levels.
Policy Reversal in Practice
Although the Health and Social Care Levy was repealed in name, the government has effectively brought it back through the back door. Instead of introducing a new line on payslips, the increased employer NIC rates quietly serve the same function—providing additional funding for public services.
This approach allows the government to avoid politically controversial tax labels while still achieving its fiscal objectives. For businesses, however, the result is the same: higher operating costs and reduced profitability unless mitigated by reliefs or efficiencies.
Business Response and Strategic Actions
Employers need to prepare for the 2025/26 NIC increases now. Steps to take include:
- Reviewing payroll systems to ensure the new rates and thresholds are implemented accurately.
- Budgeting for higher employer NIC costs across all employee categories.
- Reviewing eligibility for the Employment Allowance, which can offset some of the additional NIC liability for smaller employers.
- Reassessing workforce structure, including the mix of part-time, full-time, and contracted labour.
- Considering outsourcing or automation options in response to rising employment costs.
Planning is essential to manage the shift without harming service quality or employee morale. Many businesses, particularly SMEs, will feel the impact of increasing National Insurance rates and decreasing thresholds due to the scrapped Health and Social Care Levy. All businesses need to review payroll costs as they prepare for a more expensive employment landscape in 2025/26.
