National Insurance thresholds

UK Spring budget 2022, How much tax need to pay

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UK Spring Statement 2022:How much tax you will pay

Chancellor Rishi Sunak delivered the Spring Statement today, making announcements about National Insurance thresholds, fuel duty and VAT relief.

Key points:

  • Fuel duty is reduced by 5p per litre from 6pm on 23 March 2022 (for one year).
  • The Health and Social Care Levy goes ahead as planned from April 2022 (effectively increasing NIC rates for 2022/23).
  • Class 1 employees NIC – the Primary Threshold of employees NIC will rise from July 2022 – read more here.
  • Class 2 self-employed NIC – from April 2022, the starting threshold will increase to £11,908.
  • Employers NIC – the Employment Allowance (for smaller employers) increases to £5,000 for 2022/23.
  • The basic rate of income tax is to be cut by 1% to 19% from April 2024.
  • Household Support Fund – an extra £500m will be made available to Local Authorities to support vulnerable households.
  • R&D relief – part of the reforms being implemented from April 2023 block deductions for overseas R&D work but some exemptions have been confirmed (for regulatory reasons, eg clinical trials and geographical factors). In addition, companies will be able to claim R&D relief on projects supported by pure maths.
  • Further reforms to R&D relief will be considered in a consultation to be published in the summer – this may include an increase in the rate of relief to ensure the UK remains a competitive location for R&D.
  • Capital Allowances – The government will consider alternative options so that it is able to replace the super-deduction when it expires in April 2023
  • VAT on energy saving materials will be reduced from 5% to 0% from April 2022 to April 2027 (this includes insulation, solar panels and wind turbines).
  • A review of the Apprenticeship Levy (introduced in 2017 to encourage employers to use apprenticeships to upskill their workforce) will take place to determine whether the scheme is “doing enough”.
  • Tax reliefs – In the interest of creating a fairer and efficient system, the government plans to announce the  simplification or removal of a number of existing tax reliefs in the lead-up to 2024.
  • A review of Enterprise Management Incentives has concluded that they are fit for purpose and do not need to be reformed.

NIC changes announced

As expected, the Health & Social Care Levy (HSCL) will come into effect as planned through a 1.25% increase in National Insurance contributions (NIC) from 6 April 2022.  However, in a move to counter the impact of this tax rise, the Primary Threshold and Lower Profits Limits, (the points at which employees and the self-employed respectively start paying NIC), will increase. The Primary Threshold will rise from July 2022 to equal the income tax personal allowance (currently £12,570 per annum). The Lower Profits Limit will rise to £11,908 for the 2022/23 tax year. The government estimates that this will mean that around 70% of workers will pay less NIC overall for the final 9 months of 2022/23 but individuals earning a salary of more than £34,923 for the year will still pay more NIC overall.

For employers, there are a number of practical implications:

This will mean two changes for employers and payroll providers alike in 2022/23

one to introduce the increased rate of NIC from 6 April 2022, and then to reduce NIC payable through the increase in the thresholds from July 2022.

This relief provides support only for workers.

Those who do not pay employees NIC, which includes anyone over state pension age as well as those relying on benefits, will need to wait until 2024/25 for the 1% reduction in the Basic Rate of income tax before seeing any increase in their net income.

The increase in the NIC threshold does not affect the point at which organisations start to pay employers NIC, so their liabilities will not be reduced by this new measure.

However, to provide support for smaller employers, the Employment Allowance, which is available for organisations whose employers’ Class 1 National Insurance liabilities were less than £100,000 in the previous tax year, will be increased from £4,000 to £5,000 per annum from April 2022, which allows businesses to reduce their employer National Insurance contributions (NICs) bills this year.

Around 495,000 businesses will benefit from this £1,000 increase (30% of all businesses), which includes 3% of businesses who would be taken out of paying MICs and the Health and Social Care levy entirely.