2022 Spring Statement - Spring Bunny or Alice's White Rabbit?
Today the Chancellor was forced to doing something about the increases in cost of living. Hence, the fuel duty cuts, employee and self employed threshold national insurance increases but not too much else.
If people are still not feeling spring-like, the promise of a 1% cut in the income tax rate from April 2024.
Dig in a bit further and you decide:
National insurance (NI) threshold increases by £3,000
To help the lower-paid, but also all of us who are directors/employees/self employed, a much welcome simplification measure of aligning the NI threshold of £9,568 with the income tax free threshold of £12,570 will be introduced from July 2022.
Why July you ask? This shows that the Chancellor has had to make unplanned changes and is probably the time HMRC needs to updates its IT system. He might even have planned to do this in a year or so and has simply brought it forward.
The stated saving for 2022/23 of £330 for employees/directors is from applying this increase from July. If it had been for a full year at the current 12% rate of NI it would save £360. For sole traders and partners, the calculated part-year saving is £250 because Class 4 NI is only paid at 9%, instead of the employee 12% rate.
Interestingly, the threshold at which Class 2 NI is paid is jumping from £6,725 to £12,570. Ensure you are registered with the DWP even if you won't pay Class 2, otherwise you'll lose contributory years towards your state pension.
Above the new annual £12,570 threshold, the NI rates will still be increased to 13.25% for employees/directors and to 10.25% for the self employed. Employees with more than one job will benefit even more. Ordinarily one NI threshold is given to each job, not each person.
National insurance (NI) employer's annual allowance increase from £4,000 to £5,000
And employers will still pay 15.05% on earnings above £9,100, although the £4,000 annual allowance will be £5,000. This £5,000 is equivalent to 15.05% on a £42k salary for one employee, or more employees on lower salaries. It does seem to help small businesses afford to employ one or two staff.
Director's annual salary
This employee NI saving seems to mean that even sole directors pay should now be £12,570 (£1,047 pcm) for most directors, rather than the planned £9,100 (£758 pcm). We will of course advise you in due course.
Income tax rate decrease by 1% from April 2024
Why, you may ask, is NI increasing by 1.25% now, followed by a 1% income tax cut in two years time? It probably has a bit to do with devolved governments who can only adjust income tax, but also being seen to deal with long term care costs through the NI system rather than the income tax system which affects more people.
What was missing?
Business miles rate increase - An increase in the longstanding business mileage rate claim from 45p to at least 50p would have been welcome. Did the government want to encourage company electric vehicles instead where there has been a recent increase from 4p to 5p for business miles claims.
Working from home continued relaxation - From April 2022 it appears we're back to claiming for each week, not the whole year, and only in your tax return if your employment contract requires you to work from home.
Threshold where child benefit starts to be taken away - This is £50,000 and is now noticeably out of line with both the income tax and NI thresholds of £50,270. This is becoming a nice additional background money earner for the government.
Hospitality VAT decrease - This looks set to increase from 1 April 2022. Check your gross profit margins and ensure you still have a sustainable businesss. You may need to increase your prices.
Will you have a Spring in your step and get through these cost of living increases? If not, do make sure you take advantage of everything that is on offer within the tax, benefit and grant systems.