Personal Tax Update – March/April 2022

Mar 29, 2022 | Blog

With the recent Spring Statement being announced, our personal tax update gives you all the current tax information you need including:

National Insurance Contributions (NICs)

Despite lobbying to delay the upcoming 1.25% increase in NICs payable by employees, employers and the self-employed, the government has decided to go ahead as planned from April 2022, to provide additional funds for health and social care.

Some new measures have however been announced in an attempt to combat the effect of the increase, at least partially.

Increase in the starting NIC threshold for individuals

The annual level at which employees and the self-employed start to pay NICs was due to increase from £9,568 to £9,880 from 6 April 2022.

This increase will go ahead but be further uplifted to £12,570 from 6 July 2022, effectively aligning the point at which an individual starts to pay NICs with the £12,570 income tax personal allowance.

In the tax year to 5 April 2023, this is a NIC cut worth £267 for most employees and £207 for most self-employed individuals.

Crucially, this will more than negate the impact of the 1.25 percentage point NIC increase for most workers with employment earnings of less than £34,000, providing them with a small contribution to the increased cost of living.

The starting NIC threshold for the self-employed and company directors is computed on an annual basis and so will be set at a pro-rata sum of £11,908 for the whole of the tax year to 5 April 2023, before increasing to £12,570 in the tax year to 5 April 2024.

Class 2 NIC liabilities of the self-employed

For the self-employed, some individuals will find that they no longer need to pay Class 2 NICs from April 2022. The small profits threshold will be set at £6,725 as planned but the requirement to pay Class 2 NIC will only apply to those with self-employed profits over £11,908.

This will benefit approximately 500,000 self-employed individuals by saving them £165 a year.

From 6 April 2023, Class 2 NIC will only be payable by those with profits over £12,570.

What about employers?

No changes have been made to the annual level at which employers’ NIC start to apply; namely £9,100 for most employees in the tax year to 5 April 2023.

However, the Employment Allowance, which allows eligible businesses to reduce their employer NIC cost, will increase from £4,000 to £5,000 for the tax year to 5 April 2023.

It is expected that 495,000 businesses will benefit from this increase, with most saving £150 in the tax year to 5 April 2023.

Personalised summary

While the Spring Statement described tax cuts, we must not lose sight that there is still the upcoming 1.25 percentage point increase in NIC, along with a freeze in income tax bands and allowances. Many individuals and businesses will still be paying more tax and NIC in the year to 5 April 2023 than they did last year.

Please get in touch if you’d like a personalised summary of how these changes affect you or if you have any questions about your payroll.

Income Tax

The Chancellor has committed to reduce the basic rate of income tax from 20% to 19%, but not until 6 April 2024. Note that the Scottish Parliament and Welsh Assembly have devolved powers to set their own income tax rates on earned income. It is estimated that this will save 30 million individuals an average of £175 per year.

Fuel Duty

Fuel duty has been cut by 5p per litre for 12 months from 6pm on 23 March 2022. The Treasury report that this will save the average car driver £100 a year and the average van driver £200 a year.

Household Support Fund

The Household Support Fund will be doubled to £1billion from April 2022. The Fund will help households with the cost of essentials such as food, clothing and utilities.

Gift aid your donations to help Ukraine

For individuals and businesses wanting to donate money to help to support those suffering in Ukraine, there are a number of charities providing humanitarian relief. Ideally this should be done via the Disasters Emergency Committee (DEC) Appeal at: www.dec.org.uk/.

Individual UK taxpayers should make sure to tick the Gift Aid box as that will increase their donation by 25%. It should also be remembered that, like pension contributions, higher and additional rate taxpayers are able to obtain even more tax relief. For example, a £40 donation only costs £30 after higher rate tax relief.

Don’t lose your 2021/22 personal allowance

For every £2 that your adjusted net income exceeds £100,000 the £12,570 personal allowance is reduced by £1. Pension contributions and Gift Aid can help to reduce adjusted net income and save tax at an effective rate of 60%. The restriction applies between £100,000 and £125,140 adjusted net income.

Consider a salary sacrifice scheme

Another way that you could avoid the personal allowance trap and also reduce income tax and national insurance would be to agree with your employer to sacrifice some of your salary in exchange for a tax free, or low tax benefits in kind. Common examples would be additional pension contributions or providing an electric company car in exchange for a lower salary.

We can assist you in setting up a salary sacrifice arrangement correctly as it will involve amending the contract of employment. You may be doing this anyway as many employers are moving to “hybrid” working and changing the days that staff are required to work in the office.

Missing out on help with childcare costs?

The government are concerned about the lack of take up of tax-free childcare accounts, with HMRC estimating that only about 25% of families eligible for the scheme had joined.

With many parents returning to work following the pandemic, they should be encouraged to set up a tax free childcare account to help with their childcare costs. For every £8 paid into an online account, the government will add an extra £2, up to £2,000 per child per year and that money must be used to pay eligible childcare costs.

Tax-free childcare is available for working families (including the self-employed) who are not receiving tax credits, universal credit or childcare vouchers.

It can also be used at the same time as the 15 or 30 hours of free childcare in England. The couple (or single parent) must earn at least £142 per week each. Their children must be under 12 (or under16 if disabled).

If you have any questions relating to the above personal tax-related topics, don’t hesitate to get in touch. You can contact us here.

Let’s connect

If you like the sound of a friendly local accountant who understands the challenges you face, with a relentless focus on efficiency and consistency, we should talk sooner rather than later. We can’t wait to learn about your business and start sharing ideas.

Xero Silver partner logo
ACCA logo