Spring Statement Summary 2022

Changes to how much someone can earn before National Insurance is payable

It was announced that the level of income at which National Insurance (NI) starts to be paid is to be increased to match the Personal Allowance. Not since Gordon Brown scrapped the 10p tax rate and then had to back track on this has the NI and Income Tax 0% bands been aligned.

But there is a complication. This is clearly a last minute announcement and as a result, the increase in the “Primary Threshold” isn’t being changed until July. Although the headline is that NI won’t start until £12,570 of income is paid, it is actually being apportioned in the 2022-23 tax year. This means NI will be chargeable on salaries of more than £825 for the first three months of the tax year and then in July this increases to £1,047.50 per month.

As a result, employees with the same monthly gross pay each month will get a little extra in their net pay from July onwards. But for employers there are no changes to the NI bandings meaning that throughout the year the rate stays the same, £758 per month being the point at which employer’s NI becomes payable.

This causes a lot of complexity on the calculation of optimum salaries and dividends for limited company owners!

For businesses that operate as sole trade and partnership structures the point at which profits are applicable to the 10.25% Class 4 National Insurance has been increased to £11,908, increasing to £12,570 the following year.

Health & Social Care Levy

Increase in National Insurance and Dividends Tax Rate

It was confirmed that the 1.25% increase in the National Insurance and Dividends tax rates will come into operation as planned.

See our tax table here for full details, but essentially:

• Employees earning between £12,570 and £50,270 per year will pay National Insurance at 13.25% and anything over this at 3.25%
• Employers will pay 15.05% national insurance on employee’s earnings over £8,840 per year
• Dividends will be taxed at 8.75%  where the dividends are in the basic rate of tax (i.e., income is below £50,570 and a full personal allowance is given). There remains a £2,000 nil rate band for dividends, but this is does use up £2,000 of the basic rate band for income tax
• Higher rate dividends will be taxed at 33.75% if taxable income is between £50,570 and £150,000. Any dividends above this are taxed at 39.35%

It is important to remember that for every £2 over £100,000 of total taxable earnings you lose £1 of personal allowance so for higher earnings further calculations may be needed.

It is also important to remember that dividends are always taxed at your highest rate of tax. Essentially, they are always considered last in calculating your tax liabilities.  Employment, rental profits and self-employment income are always assessed first and therefore are taxed at the lower band rates first. This can be an important consideration if you take employment for part of the year or drastically change your earning structure mid-tax year.