The Chancellor, Rishi Sunak, announced the Governments Spring Statement on 23rd March 2022. We are releasing this information sheet as a summary of the changes announced. Additional information will be provided when more detailed information is released over the coming weeks.
Tax Free Personal allowance
The personal allowance will remain in the 2022/23 tax year at £12,570. The personal allowance is currently not set to increase until tax years 2025/26.
The personal allowance will continue to be restricted by £1 for every £2 where adjusted net income exceeds £100,000. There is no personal allowance for those exceeding adjusted net income of £125,140.
Changes to National Insurance – Employees and Employers
It was announced in September 2021 that the rates of National Insurance paid by employees are increasing from 12% to 13.25% on income up to £50,270 and the rates for employers are increasing from 13.8% to 15.05%. We recently wrote an article which goes into more detail about these changes.
Employees National Insurance
Whilst the increase in NI rates as outlined above will still be going ahead, the primary threshold on which these rates are paid will increase for employees from £9,568 to £12,570, aligning the threshold with the personal allowance. The increase in the threshold effectively means that employees will pay the higher rates of NI, on less of their income. This will come into effect on 6th July 2022.
Low Director Salaries
Due to the primary threshold increasing in line with the personal allowance for employees as discussed above, understandably Directors who are currently on a salary of between the lower earnings level of £6,240 and the primary threshold of £9,568 may be concerned that they are not contributing to their state pension. However, as long as the Directors earnings are above the lower earnings level of £6,396 for the 2022/23 tax year, the pension NI credit will still be available.
Employers National Insurance
It is important to note that whilst the primary threshold for employees is increasing, there is no increase in the secondary threshold for employers. This means that employers will pay employers National Insurance contributions at a rate of 15.05% on employee’s earnings above £9,100. This will come into effect at the start of the new tax year, 06th April 2022.
For Employers that employ apprentices under the age of 25 and staff under the age of 21, Class 1 NI will also be payable at a rate of 15.05%, an increase from 13.8%. However, employers do not start paying Class 1 until these employees have earnings above; £967 weekly, £4,189 monthly and £50,270 per year. This threshold has also not changed and remains the same as it was in the 21/22 tax year.
In brief, businesses are eligible for the Employers Allowance if their Class 1 liabilities were less than £100,000 in the previous tax year and if there is more than one employee on the payroll who is paid above £9,100. Director only Companies are not eligible for this allowance. If part of a group, the combined Class 1 liabilities must be less than £100,000 to be eligible.
The Employers Allowance reduces Employer’s PAYE tax liabilities through the payroll and this allowance will increase from £4,000 to £5,000 in the 2022/23 tax year. The Chancellor has said that they hope the increase will cover the extra Employers NI which is to be paid, as discussed above.
If Johnston Wood Roach Limited are already running the payroll for your Company, the Employment Allowance will be claimed for you where you are eligible, there is no need to notify us that you are eligible.
Basic Rate Income Tax Cut
The Chancellor has promised to cut the basic rate of income tax which is currently 20% to 19% from 06th April 2024. Please note that this is subject to change.
Changes to National Insurance – Self-Employed Individuals
The Chancellor has also announced that the profit thresholds, the portion of profits on which the Self-Employed pay Class 2 and Class 4 National Insurance on, will be increased.
Class 4 NI rates will increase from 9% to 10.25% in the 2022/23 tax year on profits up to £50,270. The profit threshold for Class 4 NI will increase from £9,658 to £11,908 in the 2022/23 tax year. This means that all profits above £11,908 will be charged with Class 4 NI at a rate of 10.25%. The threshold will then further increase to £12,570, in line with the personal allowance, in the 2023/24 tax year.
Class 2 NI enables the Self-Employed to build up a contribution record for the state pension and other benefits. Class 2 NI is only payable when the profits exceed the lower profits threshold and the amount to pay is worked out on a weekly basis, rather than as a percentage of profits. The new flat weekly rate for Class 2 NI in the 2022/23 will be £3.15, this is an increase of 10p per week, from £3.05 per week in the 2021/22 tax year. The lower profits threshold is set to increase so that it is in line with the Class 4 NI rates. In the 2022/23 tax year, the threshold will increase from £6,515 to £11,908. This will then further increase in the 2023/24 tax year to £12,570.
The sharp increase for Class 2 NI limits would ordinarily mean that many Self-Employed Individuals will not meet the threshold and therefore would have to make voluntary payments to enable them to be eligible for the state pension and other benefits.
However, the Government have announced that from 06 April 2022, all Self-Employed Individuals with profits below the lower profits threshold of £11,908 but above the small profits threshold of £6,725, will be able to build up a ‘Class 2 NI credit’ for that year whilst subsequently not actually paying Class 2 NI. This will enable Individuals to build on their state pension years. The NI credit is not automatic, and to be able to record this credit you must submit a tax return even though there will be no tax to pay if the individual has no other income.
Voluntary NI payments are not eliminated by the Class 2 NI credit for those Individuals whose Self-Employed profits are below £6,725, so these voluntary payments will still need to be made for those in this category.
Dividends of up to £2,000 per tax year will continue to be tax free. There are slight rises in dividend tax, depending on which tax band an individual is in. The new and old tax rates can be found below:
In conclusion, there have been many changes announced by The Chancellor in the Spring Statement and the main changes for you to be aware of are outlined above. Whilst the finer details have not yet been released by The Chancellor, the experienced team at Johnston Wood Roach Limited will be able and happy to assist you with any concerns you may have with the changes.