Autumn Statement 2022 Small Business Summary

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The Autumn Statement 2022 contained a number of tax increases for small business, landlords and employees. Below is a summary of relevant changes.

National Living and Minimum Wage

The national and living wage will increase from April 2023

Age range Current hourly rate From April 2023
23 and over £9.50 £10.42
21 – 22 £9.18 £10.18
18 – 20 £6.83 £7.49
16 – 17 £4.81 £5.28

 

Tax on dividends

From April 2023 the current 0% tax dividend allowance will be halved to £1,000. This will result in additional income tax of £88 for a basic rate taxpayer, £338 more for a higher rate taxpayer and £394 more for an additional rate taxpayer.

In April 2024 it will be reduced again to £500.

Business owners with the flexibility of paying a salary/dividend mix may want to re-assess whether their strategy is still the optimum remuneration method for them.

Income Tax and NIC thresholds

The personal tax allowance has been frozen at £12,570 until April 2028. The higher rate tax threshold will remain at £50,270. Usually these thresholds increase to keep pace with inflation. Freezing the thresholds will mean most people paying more tax over the next few years. Assuming inflation of 2% per year, someone with a salary of £25K will pay around £580 more in 2027/28, while someone earning £62K will pay about £2,940 more.

The additional rate of tax, 45%, will be payable on income above £125,140 from April 2023. The threshold is currently £150K.

National Insurance

The employer’s threshold will remain at £9,100. Employer’s (secondary) NI contributions will be due at £13.8% of employee’s earnings above that level.  However, the employer’s allowance remains in place, so many employers will not need to pay the first £5,000 of secondary contributions.

Class 2 NIC, paid by self-employed people, will increase to £3.45 per week.

Capital Allowance Reduction

The tax-free capital allowance will reduce from £12,300 to £6,000 in April 2023, then become £3,000 in April 2024. This is significant for property owners planning to sell properties that are not their main residence.  It will increase tax liabilities by up to £1,764 in 2023/24 and £2,604 in 2024/25.

Corporation tax

Corporation tax will remain at 19% for companies with taxable profits below £50K.  Those with profits between £50K and £250K will pay 25%, with marginal rate relief.  Marginal rate relief provides a gradual increase in the rate of corporation tax as profits increase from £50K until the main rate of 25% is payable once profits reach £250K.

R&D tax relief

The small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%.  This is quite a significant change and means considerably less tax relief will be available for small companies.

Business rate relief

For the smallest businesses affected by reductions or changes in eligibility to small business rate relief or rural rate relief, the increase to their bills will be capped at £600 per year from 1st April 2023.

More information…

You can read the full Autumn Statement on the Treasury website.

Revising your forecasts and business plans for April 2023 would be a good idea. If you would like any assistance please get in touch.

Spring 2022 tax and NI update

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A Summary of changes to UK tax and NI rates and thresholds from April 2022

Employers and Employees

Minimum and living wage rates increase from 1st April 2022

23 and over 21 to 22 18 to 20 Under 18 Apprentice
April 2021 (current rate) £8.91 £8.36 £6.56 £4.62 £4.30
April 2022 £9.50 £9.18 £6.83 £4.81 £4.81

 

The Employment Allowance will increase

From April 2022 the employment allowance, which reduces employer’s national insurance contributions for certain employers, will increase to £5,000.  Employer’s NIC rates and thresholds remain unchanged.

The planned increase to National Insurance rates will go ahead

The rate of National Insurance will increase by 1.25 percentage points between 6th April 2022 and 5th April 2023.   After 5th April 2023, the increase will be replaced by a separate Health and Social Care Levy.

Class 1 and Class 4 National Insurance thresholds will increase

From July 2022, the threshold at which employees start paying Class 1 National Insurance contributions – which is currently £9,569 and will rise to £9,880 in April 2022 – will increase again to £12,570. This means that employees won’t have to start paying National Insurance until they have earned a minimum of £12,570 in a single tax year, though there may be special arrangements for the 2022/23 tax year.

As NIC is paid according to the pay period, and is not cumulative, only nine months of earnings (from July 2022 to March 2023) will benefit from the higher PT.

Sole Traders and Self-employed

Class 4 NIC

The threshold for Class 4 National Insurance contributions – which self-employed people pay on their profits – will also increase from July 2022. Currently £9,569 and £9,880 from April 2022, the threshold will increase again in July to £12,570.

The class 2 small profits threshold (SPT) will remain in place from April 2022, but the individual will not be liable to pay class 2 NIC until their profits exceed the lower profits threshold for the tax year, which is aligned with the lower profits threshold for class 4 NIC.

Tax year Flat rate per week Small profits threshold Lower profits limit
2022/23 £3.15 £6,725 £11,908*
2023/24 TBA TBA £12,570

*effective limit for the year with the first 13 months at £9,880 and the remainder from July at £12,570.

New class 2 NI credit 

Where the individual has annual profits between the SPT and the LPL, they will effectively build up a NI credit for that year, while paying zero class 2 NIC. Note that the taxpayer has to make profits at least equal to the SPT for the year in order to benefit from this class 2 NI credit.

In order to receive the class 2 NI credit the taxpayer will have to submit a tax return, although if they have no other income in the year they will have no tax to pay.

The introduction of the class 2 NI credit does not eliminate the need for voluntary class 2 NIC payments. Where the trading profits are less than the SPT the individual may still wish to pay voluntary class 2 NIC in order to maintain their contribution record and qualify for the state pension, as well as for other contributory benefits.

 

Class 2 National Insurance rules will change 

From April 2022, sole traders whose annual profits fall between the Small Profits Threshold and the Lower Profits Limit will be able to claim that year as a qualifying year for contributions towards the State Pension and other benefits, without paying Class 2 National Insurance.

The Small Profits Threshold is currently £6,515 and will rise to £6,725 on 6th April 2022. The Lower Profits Limit is currently £9,569. It will rise to £9,880 on 6th April 2022 and will increase again in July 2022 to £12,570.

Personal Income Tax

The basic rate of Income Tax will decrease

In April 2024, the basic rate of Income Tax in England, Wales and Northern Ireland will decrease from 20% to 19%. It’s not yet known whether any equivalent change in Scotland, where rates are set by the Scottish government, will be introduced.

Dividend tax will increase by 1.25 percentage points in 2022.  The new dividend tax rates for 2022/23 tax year (factoring in the 1.25 point rise) are: 8.75% (basic), 33.75% (higher) and 39.35% (additional).

Corporation Tax

Further news on capital allowances is expected in the Autumn Budget

The Annual Investment Allowance will remain at £1 million until March 2023. The Chancellor indicated that more news on the UK’s capital allowances regime can be expected in the Autumn Budget later this year.

This is just a brief summary of changes, please get in touch if you’d like assistance with your tax returns or employee payrolls. You can read the Spring Statement 2022 in full on the government’s website.