Spring Statement 2022: How does it effect me?

Spring Statement 2022-03-23: How does it effect me?

Experts looked at yesterdays budget as an opportunity for the government to intervene with the outrageous inflationary pressures on families and businesses. But has it done that? We really don't think so.

Changes that will effect taxpayers are mainly aimed at National Insurance where several threshold increases were announced.

• The threshold for paying National insurance will increase by ￡3k from 6th July 2022. The new NI Class A threshold will be ￡12,570 (up from ￡9,568) for employees and Class 4 threshold ￡11,908 (also up from ￡9,568) for sole traders.. On one hand this is a positive move for all earners especially those on low income. However the previously announced 1.25% hike in NIC rates means it's giving with one hand and taking away with the other for taxpayers who earn over these thresholds. It was hoped that this 1.25% increase would be scrapped.
• An extra ￡1,000.00 Employers NIC allowance is a welcome especially for small employers. However as previously explained it will only offset against increased Employer NIC rates which will increase from 13.8% to 15.05% from 6th April 2022. The employers threshold of ￡9,100.00 has also not changed.

From 6th July 2022 the NIC rates will be as follows:

Class 1 for Employee earnings between ￡0.00 - ￡12,570: 0.00%

Class 1 for Employee earnings between ￡12,570-￡50,270: 13.25%

Class 1 for Employee earnings over ￡50,720.00: 3.25%
    
Class 1 for Employers earnings over ￡9,100.00: 15.05% (Note ￡5k allowance)
       
Class 1A for benefits: 15.05%

Class 2 for Self-Employed over ￡11,908.00 per annum: ￡163.80 pa

Class 4 for Self-Employed earnings between ￡11,908.00 - ￡50,270.00: 10.25%  
 
Class 4 for Self-Employed earnings over ￡50,270.00: 3.25%            

So that's NIC, what about the tax rates? There hasn't been any changes here.

• Personal allowance stays at ￡12,570.?
• Income between ￡12,570 - ￡50,270.00 will be taxed at 20% plus the relevant NIC rate whether you are employed of self-employed.
• Higher rate threshold stays for income between ￡50,270 - ￡150,000 at 40% + NIC AT 3.25%, with income over ￡150k taxed at 45%+3.25%.
• High Income Child Benefit surcharge remains for income in excess of ￡50,000 This results in a high marginal tax rate between ￡50k-￡60k for parents who receive CB.
• ￡100,000 threshold for loss of Personal Allowance. Reduced by ￡1 for every ￡2. Resulting in total loss of personal allowance on income over ￡125,140.00. Again resulting in a high margin of tax.
• Dividends on company distributions (after CT) are taxed differently with the following rates: Basic rate, 7.5% to 8.75%, Higher rate, 32.5% to 33.75%, Additional rate 38.1% to 39.35%.
• Personal CGT allowance frozen at ￡12,300 until 2025/26.?
• VAT threshold frozen at ￡85,000 to 2023/24.
• Mileage stays at 45p for business use of private car under 10,000 miles, and 25p for additional miles.?
• IHT threshold remains at ￡325,000 with ￡125,000 new allowance for family home
• Pension annual allowance ￡40,000.
• Pension lifetime limit ￡1,073,100.
• Dividends allowance ￡2,000
• Trading allowance ￡1,000
• Personal savings allowance (basic rate) ￡1,000

Everyone's personal tax situation will be different whether you are a company director, sole trader or employee.

Thresholds to be aware of for all taxpayers:

￡12,570 if you don't want to pay tax.

￡50,000 if you want to keep all your child benefit

￡50,270 if you want to stay basic rate

￡100,000 if you want to preserve all your personal allowance

￡150,000 if you want to avoid the additional (45%) rate of tax:         

For company directors the most tax efficient way to extract cash from their business will remain as a salary and dividend split.

Personal Tax Arising: First ￡14,570: Nil

Next ￡35,700 (to ￡50,270) 8.75% (Basic Rate dividend tax)

Next ￡49,730 (to ￡100,000) 33.75% (Higher Rate dividend tax)

We will be continuing to advise our clients about these changes and plan their cash extraction for next year as tax efficiently as possible.

If you have any queries regarding this article don't hesitate to contact us.

End.