The new tax year came into force on 6 April 2022.
Some of the changes that it’s ushered in may affect your business as the government looks to fix UK finances affected by the £350bn spent in response to the coronavirus pandemic.
The UK tax year is different to the normal calendar year. You might refer to it as the financial year, starting on 6 April and ending on 5 April.
A headline-making tax change in April 2022 has increased National Insurance contributions (NICs) across the board due to the government’s Build Back Better strategy, which sets out tax increases to support increased health and social care funding after the pandemic.
The National Insurance threshold has been raised by £3,000, which could be an effective tax cut for 70% of workers, according to Chancellor Rishi Sunak.
A significant change to come sees a cut to the income tax rate from 20% to 19%, but we won’t see that happen until 2024.
Here’s what we cover in this article:
- National Insurance contributions and thresholds
- Employee allowance
- Income tax
- Dividend tax
- Wage and salary changes
- Business rates
- Student loan thresholds
- Making Tax Digital for VAT
- VAT rates
- Corporation tax
- Capital allowances
- Miscellaneous taxes
- Final thoughts on the new tax year
National Insurance contributions and thresholds
There are two significant changes for the 2022/23 tax year.
The first is that National Insurance contributions (NICs) have risen by 1.25 percentage points. The government says this money will be spent on the UK’s NHS, health and social care.
Employees now pay at 13.25% (from 12%) after the primary threshold and 3.25% (from 2%) on earnings above the upper earnings threshold.
However, the National Insurance threshold has been raised by £3,000, meaning people must earn £12,570 before paying income tax or National Insurance.
The upper earnings threshold, however, has been frozen at £50,270. Employees pay a lower rate of National Insurance above this point.
The 2022/23 National Insurance increase applies to:
- Class 1 (paid by employees)
- Class 4 (paid by those who are self-employed)
- Secondary class 1, 1A and 1B (paid by employers).
Here are the main rates we’ll now see:
- Employee NICs: 13.25% (previously 12%)
- Self Employed NICs: 10.25% (previously 9%)
- Employer NICs: 15.05% (previously 13.8%).
Here are the rates above the higher rate threshold:
- Employee NICs: 3.25% (previously 2%)
- Self-employed NICs: 3.25% (previously 2%)
- Employer NICs: 15.05% (previously 13.8%).
Employment Allowance, a relief that allows smaller businesses to reduce their employer National Insurance contributions bills each year, has increased from £4,000 to £5,000.
The cut is worth up to £1,000 for half a million smaller businesses.
The basic income tax rate will fall from 20% to 19% by the end of parliament in 2024.
This is the first cut to the basic rate for 16 years.
The personal allowance and higher-rate thresholds have been maintained at £12,570 and £50,270 for the 2022/23 tax year. You’ll see these frozen until April 2026.
The income tax bands for the 2022/23 tax year are as follows:
- Personal allowance: Up to £12,570 (0% tax rate)
- Basic rate: £12,571 to £50,270 (20% tax rate)
- Higher rate: £50,271 to £150,000 (40% tax rate)
- Additional rate: More than £150,000 (45% tax rate).
Rates of dividend tax have increased by 1.25 percentage points.
Investors pay dividend tax if they earn money from owning company shares.
They will only be charged tax on the money they earn above the dividend allowance, which is £2,000 in 2022/23 (this is the same as the 2021/22 tax year).
The dividend tax rate for basic-rate income taxpayers has increased from 7.5% to 8.75%. For higher-rate taxpayers, it’s risen from 32.5% to 33.75%.
To work out the tax band, you can check the gov.uk website.
- Basic band tax rate: 8.75% (previously 7.5%)
- Higher band tax rate: 33.75% (previously 32.5%)
- Additional band tax rate: 39.35% (previously 38.1%).
Wage and salary changes
There have been increases in the minimum wages you must pay to employees, following recommendations made by the Low Pay Commission in October 2021.
The minimum and living wage details are as follows:
- National Living Wage (for people aged 23 and over): £9.50 (previously £8.91)
- National Minimum Wage for people aged 21 to 22: £9.18 (previously £8.36)
- National Minimum Wage for people aged 18 to 20: £6.83 (previously £6.56)
- National Minimum Wage for people under 18: £4.81 (previously £4.62)
- Apprentice rate for those aged under 19, or those over this age but in the first year of their apprenticeship: £4.81 (previously £4.30).
The government introduced a new business rates relief scheme for retail, hospitality, and leisure properties.
The 2022/23 Retail, Hospitality and Leisure Business Rates scheme provides eligible, occupied, retail, hospitality and leisure properties with a 50% relief, up to a cash cap limit of £110,000 per business.
The government has also brought forward two new business rates reliefs by a year.
There are no business rates due on a range of green technology used to decarbonise buildings, including solar panels and batteries, while eligible heat networks will also receive 100% relief.
Student loan thresholds
The repayment threshold for Plan 2 student loans—the income level above which post-2012 student loan borrowers are required to make repayments—remains at £27,295.
Commentators expected this would rise to £28,550 in April 2022 based on average earnings growth.
Because this won’t happen, it effectively increases what people pay each year, and most would repay in total.
In practice, university leavers will pay £110 per year more than they would have done for 2022/23 and potentially £3,000 over 30 years before the student loan can be written off.
The repayment threshold for postgraduate (Plan 3) loans remains at £21,000, which means many former postgraduate students will pay £87 a year more.
Under auto-enrolment, employers must enrol all workers in a workplace pension that meets age and earnings criteria.
There are no changes to the thresholds. For 2022/23:
- The automatic enrolment (AE) earnings trigger remains at £10,000
- The lower limit of the qualifying earnings band (QEB) remains at £6,240
- The upper limit of the QEB remains at £50,270.
Making Tax Digital for VAT
All businesses registered for VAT must follow the Making Tax Digital (MTD) for VAT rules.
This includes businesses that voluntarily registered for VAT and were left out in the initial April 2019 launch of Making Tax Digital for VAT because they were below the £85k threshold.
Find out more about MTD for VAT in these articles:
- Making Tax Digital for VAT checklist: How to get up to speed with MTD for VAT
- Step by step guide to Making Tax Digital for VAT
- MTD for VAT FAQs: 19 key Making Tax Digital questions answered
The VAT rates haven’t changed as of April 2022, except for the ending of coronavirus relief measures aimed at the hospitality sector.
The 12.5% rate for businesses in the hospitality sector applied until 31 March 2022. The 20% rate resumed from 1 April 2022.
The VAT threshold, which determines whether a person must be registered for MTD, hasn’t changed from £85,000.
That’s locked until 1 April 2024.
There’s no increase in corporation tax for the 2022/23 tax year.
But that all changes on 1 April 2023, when corporation tax rises from 19% to 25% on profits over what will be referred to as an Upper Profits Threshold of £250,000.
This is the first rise in corporation tax since 1974.
It won’t be so bad if your business is smaller because there’s also a lower threshold for corporation tax, with its own rate.
The Small Profits Rate will apply to profits under £50,000, where the rate will remain at 19% as of April 2023.
For those with profits between £50,000 and £250,000, you’ll pay a marginal rate that you will be able to calculate with software.
A super-deduction capital allowance can be used until 31 March 2023.
This is set at 130% and means companies investing in qualifying new plant and machinery assets can claim back the cost as a first-year capital allowance, plus 30% on top of that.
The media has pointed out that this is like the government paying you to buy assets.
The goal is to encourage firms to invest and therefore grow.
There’s also a further capital allowance measure for investing companies that benefit from a 50% first-year allowance for qualifying special rate (including long life) assets.
Although not directly related to business, it’s worth noting that the following personal tax allowances and thresholds are frozen until April 2026:
- Inheritance tax thresholds
- Pensions lifetime allowance
- Capital gains tax annual exempt amounts.
Final thoughts on the new tax year
The new financial year is interesting from a business tax perspective, with the government making it clear that there’s a bill to pay for the big spending that coronavirus forced them into.
Now we’re in a new tax year, it’s always good to consider what these changes mean for you.
Although some changes might seem small, it’s essential to fully understand how they affect you as a business owner – and if relevant, an employer and your employees.
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