01 May 2022
Mathew Akrigg ACIPP, policy and research officer at the CIPP, discusses the spring statement announcements that payroll professionals need to know all about
We had just wrapped our collective heads around the changes for the upcoming tax year, come to terms with the health and social care levy and braced for a drastically worsening cost-of-living crisis. Then, we were thrown into turmoil as Rishi Sunak, Chancellor of the Exchequer, announced a raft of changes to the UK tax system, in the spring statement of 2022.
Ahead of the speech, delivered on 23 March 2022, speculation began to swirl amid the cost-of-living crisis and February’s consumer price index (CPI) increase to 6.2%. Media sources were reporting a rumoured increase in National Insurance (NI) thresholds, and others called for the scrapping of the health and social care levy. There were, however, some changes we didn’t expect.
NI thresholds
The statement announced an increase in both the primary threshold (PT) and lower profits limit, from £9,880 to £12,570, from July 2022. This will align the rates with the income tax personal allowance. This means that, from 6 April 2022 to 5 July 2022, the PT will be set at £190 per week (£823 per month), but from 6 July 2022, this will rise to £242 per week (£1,048 per month).
The government has stated that, from July, around 70% of workers will pay less NI than they did in 2021/22, even after factoring in the new health and social care levy. The increase in threshold will also mean that 2.2 million individuals will no longer pay class 1 employee NI, class 4 self-employed NI or the health and social care levy.
The government has also confirmed that ‘entitlement to contributory benefits are unaffected by this measure’. Because there are no changes to the lower earnings limit (LEL), state pension, statutory payments and benefits won’t see any eligibility changes mid-year.
The decision not to make this change from April caused some discussion and controversy. The spring statement documentation states: ‘July is the earliest date that will allow all payroll software developers and employers to update their systems and implement changes’.
While there may be some truth to this, many software developers have spoken out, saying this change could be implemented on a quicker timescale. Others have pointed out that it’s more likely this was a government timing issue. Changes such as this require Parliamentary discussion and must be written into law. With only two weeks until the start of the tax year when the statement was made, it seems unlikely this could have been managed in time. Even so, a three month wait for those suffering through a cost-of-living crisis seems to be a lengthy period.
While the CIPP advocates for sufficient time to allow payroll software developers to fully develop, test and roll out amendments, it seems the timing must be dictated by the complexity of those changes. Getting payroll processes correct is of the highest priority, however, with many modern payroll systems, a change to NI rates would be a relatively quick and simple change. While we don’t want a repeat of the short turn around time of the coronavirus job retention scheme (CJRS), this timescale could have been reduced, as it could have a significant impact on individuals who are currently unfortunately feeling the pinch.
The new PT for 2022/23 is as follows:
|
PT to 5 July 2022 |
PT from 6 July 2022 |
|
|
Weekly |
£190 |
£242 |
|
2-Weekly |
£380 |
£484 |
|
4-Weekly |
£760 |
£967 |
|
Monthly |
£823 |
£1,048 |
|
Quarterly |
£2,470 |
£3,143 |
|
Half-Yearly |
£4,940 |
£6,285 |
|
Annual |
£9,880 |
£12,570 |
|
Directors Annual |
£11,908 |
|
These changes don’t affect the secondary thresholds; therefore, this won’t impact employer NI contributions due in 2022/23. With the increase to NI putting strain on businesses, this may be disappointing, however, there is some good news for some eligible smaller employers...
Employment allowance increase
The employment allowance for 2022/23 will be increasing from £4,000 to £5,000. This will allow businesses with an NI liability of less than £100,000 in 2021/22 to claim up to £5,000 to offset against their NI for 2022/23. It’s expected this will benefit almost half a million businesses, and in some cases, means small businesses won’t feel the impact of the increased cost of the health and social care levy.
2024 rate of income tax
The final announcement to shock the payroll world centred on the reduction of the base income tax rate from 20% to 19% in 2024. This is the first cut of its kind in 16 years. This will apply to the basic rate of non-saving, non-dividend income for taxpayers in England, Wales and Northern Ireland.
Scotland has an agreed framework to set its own tax rates as its tax affairs are devolved. The statement confirms Scotland will receive an additional £350 million in Parliamentary funding for 2024/25, which it can use as it chooses, ‘including reducing income tax or other taxes’. Will we see Scotland reduce taxes, or will Scottish taxpayers end up paying higher rates of income tax then their English counterparts?
While Wales has the option to set its Welsh rate of income tax (WRIT), this only forms part of the overall tax rate in Wales. For the basic rate, the UK government has previously set its portion at 10% and Wales has autonomy over the rest, in whole or half percentages. For 2024/25, the element set by the UK government will sit at 9%. Whether Wales keeps its element at 10% to remain parity with the rUK rates or not is completely up to the Welsh government.
Will we continue to see such shock announcements?
The spring statement certainly gave us plenty to talk about, with some enormous changes for the payroll world to consider. Such huge changes were bound to generate discussion and prompt the exchange of ideas. It will take time to fully realise the impact of these changes, which are bound to be a focal point over the coming months. As the economic climate is still uncertain for the short-term, will we continue to see impromptu policy changes outside of the scheduled budgets?.
Featured in the May 2022 issue of Professional in Payroll, Pensions and Reward. Correct at time of publication.