In the last financial year, the Treasury collected a record amount of tax. It comes as little surprise. As a result of many factors – not least the COVID-19 pandemic – public sector debt has hit £2.34 trillion. That’s 6.2% of GDP. Little wonder that Chancellor Rishi Sunak is keen to increase revenue from taxes. Yet, while some Cabinet members are putting him under pressure to cut taxes, the 2022-23 financial year looks set to increase the tax take still further. In this post, we look at the tax changes for 2022 and how they could affect you.
National Insurance has increased
Perhaps the most significant among the tax changes for 2022 is a hike in National Insurance. We’ve already blogged about this here, but both employees and employers face a 1.25% NIC increase. This increase is intended to fund the growing cost of the NHS and social care. From April 2023, the National Insurance increase will be replaced by a Health and Social Care levy. This could have implications for you if you are older than state pension age. Currently, employees over this age are exempted from paying National Insurance, as are the self-employed (from the end of the tax year in which they reach that age). From next year, workers over the state pension age will have to pay the new levy.
National Insurance thresholds have risen
On a more positive note, in the last Budget, the Chancellor increased the thresholds at which people pay National Insurance. The idea was to bring the threshold into line with the Income Tax personal allowance.
We’ve already posted about how the thresholds will affect the self-employed. In a nutshell, if you make a profit of under £11,908 in this tax year, you won’t pay Class 2 NICs. This figure will rise to £12,570 in 2023/24.
The combined changes to National Insurance mean that anyone earning up to about £34,000 per year will pay less. If you earn over this amount, you will pay more.
The Income Tax rates remain unchanged for this financial year, as do the basic, higher and additional rate thresholds. (These are £12,571 (20%), £50,271 (40%) and 150,000 (45%) respectively).
The personal tax-free allowance also remains unchanged at £12,570. In real terms, this is really a reduction, although lower earners will benefit from the new NI thresholds instead.
However, it’s worth noting that the basic rate of Income Tax will drop to 19% before the end of the current parliament in 2024.
Dividend Tax changes
If you receive dividends, the tax you pay on them has gone up by 1.25%. This means basic rate taxpayers will now pay 8.75% on dividend income over their (unchanged) £2,000 allowance. Higher band taxpayers will now pay 33.75% and additional rate taxpayers will have to shell out 38.1%.
The Employment Allowance has increased from £4,000 to £5,000. This relief allows SMEs and other eligible employers to reduce their annual NI liability by up to £5,000 per employee.
Minimum and living wage increases
Both the Minimum Wage and Living Wage have increased. For more details, see our article on Statutory Pay Rates 2022.
VAT rates have remained the same, with the exception of VAT for the hospitality and leisure industry. From 1st April 2022, this reverted to the standard rate of 20% from the discounted rate of 12.5% .
No changes to the following
There are no changes to the following taxes and allowances:
- Corporation Tax remains at 19% (however, big changes are in the pipeline for 2023. From then, tax on profits between £50,000 and £250,000+ will be taxed on a sliding scale of between 20% and 25%)
- Inheritance Tax thresholds remain the same.
- CGT annual exempt amounts are unchanged.
Summary of tax changes for 2022
As you can see, there are quite a few tax changes for 2022. As a general observation, the more you earn (or the higher your profits are), the more tax you will now be paying. If you are paying more, it might be a good time to talk to us about our Tax Planning Service. We offer tax advice for both individuals and businesses, and are experienced in making recommendations that could help bring your tax bills down. For more information, please get in touch with the THP team today.
About Jon Pryse-Jones
Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.
An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”
Jon’s appreciation for THP extends to his fellow team members and the board. “They really know how to run a successful business,” he says. He’s keen on IT and systems development as critical to success, and he continues to guide THP to be at the cutting edge and effective.