Today the Chancellor delivered his Spring Budget 2022. Following reports earlier in the day that inflation has increased by 6.2%, and in addition to the increase of the Bank of England rates a few days earlier, the Chancellor has been under increasing pressure to help households with the rising cost of living, Rishi Sunak’s Spring Budget was eagerly anticipated by many.
Here are some of the key updates from this latest budget.
Health and Social Care Levy
Despite increasing calls for it to be scrapped over recent weeks, the new health and social care levy will go ahead from 6th April 2022 meaning an increase of 1.25% on dividend tax, National Insurance (both employer’s and employee’s), S455 charge (in line with the higher rate of dividend tax) and Benefit in Kind.
Initially this will be captured as an increase to the rate of NI however from April 2023, NI rates will revert to 21/22 rates and a separate health and social care levy introduced at 1.25%. Everyone will pay the Levy, including those working above state retirement age.
National Insurance Threshold Increase
Reducing the impact of the Health and Social Care Levy, and possibly one of the biggest announcements in this budget, the National Insurance threshold will be increased from £9,880 to £12,570 effective from July 2022, bringing this in line with the personal allowance threshold. There is no change to the threshold for Employer’s NI which will remain at £9,100 for the year as previously announced.
Fuel Duty Cut
A welcomed update for many, the Chancellor announced that effective from 6pm, 23rd March 2022, fuel duty will be cut by 5p in a bid to alleviate some of the pressures of the rising cost of living. This will be in place until March 2024.
Perhaps in a bid to encourage smaller companies to hire staff, the Employment Allowance will increase to £5,000 from April – up from £4,000. This allowance reduces small employers’ national insurance liability, but be careful, most contractors are unable to claim this relief. You cannot claim the employment allowance if you have only one employee earning above the secondary threshold who is also a director of the business.
For the first time in 16 years, Rishi Sunak pledged to reduce the basic rate of income tax to 19% from 20% by 2024. The rate of dividend tax remains unchanged from what had previously been announced.
The below rates of dividend tax will apply from 2022/23:
- Basic Rate – from 7.5% to 8.75%
- Higher Rate – from 32.5% to 33.75%
- Additional Rate – 38.1% to 39.35%
In addition, here are some of the updates from previous budget announcements:
National Minimum Wage increase
National minimum wage will be increasing from 1st April 2022. For over 23-s, National Living Wage will be increasing from £8.91 to £9.50 an hour.
There are no changes to the planned increase to the main rate of Corporation Tax as announced in the Spring budget 2021 which is set to rise from 19% to 25% in April 2023, for businesses with profits of more than £250,000. Businesses with profits of £50,000 or less, will continue to be taxed at 19% and a tapered rate will also be introduced for profits between £50,000 and £250,000.
The extension to the temporary £1 million level of the Annual Investment Allowance is still in place until 31 March 2023.
As already announced in earlier budgets, the Personal Tax thresholds remain fixed until 2026. This means the Personal Allowance will remain at £12,570, the higher rate threshold will remain at £50,270 and the additional rate threshold is fixed at £150,000. The NIC Upper Earnings Limit and Upper Profits Limit will remain at £50,270 for these years.