Several tax and other changes (including freezes) will take effect from 6 April 2022. Most of these date back to the two Budgets of 2021. There are further important changes coming down the line.
Income tax: UK
The personal allowance for 2022/23 will remain at £12,570 and the basic rate band will similarly be frozen at £37,700 (outside Scotland), making the higher rate threshold (the sum of the two) an unchanged £50,270.
These freezes, which are set to continue until April 2026, in fact represent a real-terms tax increase, given that the Bank of England forecasts that CPI inflation in April will be 8%.
Dividend tax rates will increase by 1.25 percentage points from 2022/23, taking them to between 8.75% (basic) and 39.35% (additional rate). Both the dividend allowance and the personal savings allowance are unchanged.
Income tax: Scotland
In Scotland a separate set of rates and bands will continue to apply to non-savings, non-dividend income – primarily earnings. The same personal allowance as in the rest of the UK will continue to apply in Scotland.
Scottish taxpayers will still have five tax bands, with the tax rates for 2022/23 ranging from 19% to 46%. The threshold for the higher rate of income tax (at 41%, rather than 40%) will remain unchanged at £43,662, which is £6,608 below the rest of the UK. Someone with earnings of £50,000 a year will have an extra income tax charge of £1,489 a year for being resident north of the border.
Income tax: Wales
The National Assembly for Wales decided not to make any changes from the rates of the rest of the UK (excluding Scotland).
National insurance contributions
The secondary threshold for employer’s Class 1 NICs will increase by 3.3%, approximately in line with inflation to September 2021. The upper earnings limit (for employees) and upper profits limit (for the self-employed) will be frozen at £50,270, matching the unchanged UK higher rate income tax threshold outside Scotland.
The Class 2 NIC rate for 2022/23 will be £3.15 per week.
The rates for all contributions under Class 1 (employed) and Class 4 (self-employed) will rise by 1.25 percentage points for 2022/23 only, before dropping back to 2021/22 levels after that. The separate 1.25% Health and Social Security Levy will then take effect from 6 April 2023. Unlike the position with NICs, employees and the self-employed over state pension age (currently 66) will be subject to the new levy.
Automatic pension enrolment
The contribution levels for workplace pensions operating under the automatic enrolment provisions for 2022/23 will be unchanged:
|2021/22 and 2022/23|
|Earnings trigger for auto-enrolment||£10,000|
|Employer minimum contribution||3% of band earnings£6,240 – £50,270|
|Employee contribution*||5% of band earnings£6,240 – £50,270|
|Total minimum contribution||8% of band earnings£6,240 – £50,270|
|Maximum potential total contribution||£3,522|
* Assuming employer pays minimum required by law
Pensions – the lifetime and annual allowances
The lifetime allowance, which sets the effective maximum tax-efficient value of pension benefits, will remain at £1,073,100 for 2022/23 and is not due to rise until 2026/27. There is also no increase to the annual allowance, which remains at a maximum of £40,000, subject to the taper and money purchase annual allowance rules.
Company car tax for vehicles registered since 6 April 2020 will rise in 2022/23 for all but the highest emission vehicles.
- The taxable cash equivalent percentages will all increase by one percentage point, subject to the current ceiling of 37% of list price.
- Older cars will be unaffected, meaning that in 2022/23 the same scale will apply to cars with CO2emissions measured under both the NEDC and the newer WLTP yardsticks.
The diesel surcharge will remain at 4% for diesel cars that do not meet the RDE2 emission standard (which became mandatory from January 2021). The maximum charge for diesels also stays at 37%.
The scale charge for purely electric vehicles (EVs) will double to 2%, but EVs remain an attractive option for anyone able to obtain such a vehicle under salary sacrifice arrangements.
Inheritance tax (IHT)
The residence nil rate band and main nil rate band will remain at £175,000 and £325,000. Both are set to stay frozen until 2026/27.
Value added tax
The reduced 12.5% VAT rate for hospitality, holiday accommodation and attractions will end on 31 March 2022, at which point the rate will revert to the 20% standard rate.
If any of the above changes impact you and you would like to discuss them then please get in touch with us today to arrange an appointment.