McDermott Comment | Workers to pay 1.25% health and social care tax


James Ross, partner at law firm McDermott Will & Emery, said:

“For employers, the impact is relatively straightforward – an extra 1.25% on wage costs. In the long run, however, it is likely that the economic cost of this charge will largely be borne by employees through a reduction of the rate of increase of earnings.

As far as individuals are concerned, the Government has made some attempt to address the inequities of increased taxation on earned income by increasing the rate of tax on dividends (in order to reduce the benefits of routing income through service companies. This, however, introduces asymmetries elsewhere in the tax system. The top rate of tax on dividends will increase to 39.35% – nearly twice the 20% top rate of tax on capital gain. Individuals who hold material shareholdings in trading or investment companies will have clear incentives to try and structure their returns as capital gains rather than dividend income.”