The 2022 Budget
As usual, we are pleased to share an overview of the 2022 Budget and what it means for you, our valued clients.
You can read the full statement here: HM Treasury Spring Statement 2022
And here are the highlights for businesses:
Increase in the National Insurance threshold and Lower Profit Limit
From 6 July 2022, the threshold for Primary Class 1 National Insurance Contributions (paid by employees) will be increased to £12,570 - bringing it in line with the starting threshold for income tax (which is frozen at that rate until 2025/26).
From 6 April 2022, the Lower Profits Limit (the point where the profits of the self-employed become subject to Class 4 National Insurance Contributions) will be increased to £11,908 and from 6 April 2023, it will be increased to £12,570.
In addition, there will be no Class 2 NICs on profits between £6,725 and £11,908 (which used to be £3.05 per week). Where profits are over £11,908 £3.15 per week is payable.
Temporary increase in National Insurance Contributions
From April 2022, there will be a temporary increase in the rates of NICs payable for employees, employers and the self-employed as a transitional provision in readiness for the introduction of the Health and Social Care Levy from April 2023.
From 6 July 2022, employees earning between £242 (£190 from 6 April to 5 July 2022) and £967 per week will pay NICs at 13.25%. Earnings over £967 will attract a 3.25% charge.
Employers will pay 15.05% on their employees' earnings over £175 per week.
For the self-employed, where their profits exceed £11,908 per year, they will pay 10.25% on the profits up to £50,270 and 3.25% on profits over that upper profits limit.
Income Tax reduction
From April 2024, the basic rate of income tax will be cut to 19%.
In a measure announced in the Spring Statement to help all motorists (individuals, small businesses and hauliers) fuel duty for petrol and diesel is cut by 5 pence per litre across the whole of the UK. This measure took effect from 6pm on 23 March 2022 and is in place for 12 months.
Increased Employment Allowance
Employers are able to claim the Employment Allowance which reduces their employer Class 1 NICs each year.
From April 2022, this will be increased by £1,000 for eligible employers, to reduce their employer NICs by up to £5,000 per year.
The allowance can be claimed against only one PAYE scheme, even if the business runs multiple schemes. Connected businesses, such as companies under the control of the same person or persons, are only entitled to one Employment Allowance between them.
VAT on energy saving materials
From April 2022, there will be a time-limited, zero rate of VAT for the installation of energy saving materials. This will apply to installations such as rooftop solar panels.
This is in addition to the extension of the VAT relief to include additional technologies and the removal of complex eligibility conditions.
Green reliefs for business rates
The government is introducing targeted business rates exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat networks with their own rates bill.
These measures will now take effect from April 2022, a year earlier than previously planned.
Tax on dividends
The first £2,000 of dividends are chargeable to tax at 0% (the Dividend Allowance). For 2022/23 and subsequent tax years, the rate at which dividends received above the Dividend Allowance are taxed has increased across all rates by 1.25% to the following rates:
8.75% for basic rate taxpayers
33.75% for higher rate taxpayers
39.35% for additional rate taxpayers.
Dividends within the allowance still count towards an individual's basic or higher rate band, and so may affect the rate of tax paid on dividends above the Dividend Allowance.
To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.
Corporation Tax increase
From 1 April 2023, the main rate of Corporation Tax will increase to 25%.
If a company's accounting period straddles more than one FY, the amount of profits for that accounting period must be apportioned to arrive at the tax rate charged.
A small profits rate will be introduced for qualifying companies with no associated companies in the accounting period and profits of £50,000 or less so that they will continue to pay CT at 19%.
Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective CT rate.