THE AUTUMN STATEMENT 2022
Released On 28th Nov 2022
INCOME TAX
Income tax rates
On 17 November 2022, the government undertook the third fiscal statement in as many months, against a backdrop of rising inflation and economic recession. The Chancellor laid out three core priorities of stability, growth and public services. The government sought a balanced path to support the economy and return to growth, partially through public spending restraint and partially through tax rises.
The government had previously announced that there would be a cut in the basic rate of income tax, from 20% to 19%, from April 2024. This was to be accelerated so that it took effect from April 2023. However, whilst the government aims to proceed with the cut in due course, this will only take place when economic conditions allow and a change is affordable. The basic rate of income tax will therefore remain at 20% indefinitely.
At the Mini Budget on 23 September 2022 the government announced a plan to abolish the 45% additional rate of income tax from April 2023. It was announced on 3 October 2022 that the government would not proceed with this plan.
From 6 April 2023, the point at which individuals pay the additional rate will be lowered from £150,000 to £125,140.
The additional rate for non-savings and non-dividend income will apply to taxpayers in England, Wales, and Northern Ireland. The additional rate for savings and dividend income will apply to the whole of the UK.
Income tax allowances
The income tax personal allowance and higher rate threshold were already fixed at their current levels until April 2026 and will now be maintained for an additional two years until April 2028. They will be £12,570 and £50,270 respectively.
The government will uprate the married couple’s allowance and blind person’s allowance by inflation for 2023/24.
Dividends
The government has also confirmed that, from April 2023, the rates of taxation on dividend income will remain as follows:
- the dividend ordinary rate - 8.75%
- the dividend upper rate - 33.75%
- the dividend additional rate - 39.35%.
As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, this will also remain at 33.75%.
In addition, the government will reduce the Dividend Allowance from £2,000 to £1,000 from April 2023 and to £500 from April 2024.
These changes will apply to the whole of the UK.
National insurance contributions
In September 2021 the government published its proposals for new investment in health and social care in England. The proposals were intended to lead to a permanent increase in spending not only in England but also by the devolved governments. To fund the investment the government introduced a UK-wide 1.25% Health and Social Care Levy based on the National Insurance contributions (NICs) system but ringfenced for health and social care.
The Health and Social Care Levy Act provided for a temporary 1.25% increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23. From April 2023 onwards, the NIC rates were intended to revert back to 2021/22 levels and be replaced by a new 1.25% Health and Social Care Levy.
However, the government has:
- reversed the temporary increase in NICs and
- cancelled the Health and Social Care Levy completely.
Comment - According to the government, not proceeding with the Levy will reduce tax for 920,000 businesses by nearly £10,000 on average next year.
For SMEs, the government predicts that the savings will be around £4,200 on average for small businesses and £21,700 for medium sized firms from 2023/24.
In addition, it will help almost 28 million people across the UK save £330 on average in 2023/24, with an additional saving of around £135 on average this year.
More detail for employees and employers
The changes took effect for payments of earnings made on or after 6 November 2022, so:
- primary Class 1 NICs (employees) generally reduced from 13.25% to 12% and 3.25% to 2% and
- secondary Class 1 NICs (employers) reduced from 15.05% to 13.8%.
The effect on Class 1A (payable by employers on taxable benefits in kind) and Class 1B (payable by employers on PAYE Settlement Agreements) NICs will effectively be averaged over the 2022/23 tax year, so that the rate will generally be 14.53%.
Comment - The government hopes that most employees will receive the NICs reduction directly via the payroll in their November pay but acknowledges that some will have to wait until December or January, depending on the complexity of their employer’s payroll software.
More detail for the self-employed
Following the principle detailed above, the changes to Class 4 NICs will again be averaged across 2022/23, so that the rates will be 9.73% and 2.73%.
