Following the budget announcement in October 2021, the chancellor put in place a number of changes to tax rates and national minimum wage which come into effect on 6 April 2022.
Here are our highlights:
- Changes to National Minimum Wage (NMW) and National Living Wage.
The NMW reflects the minimum wage a worker should get depending on their age and if they’re an apprentice. The National Minimum Wage is the minimum pay per hour almost all workers are entitled to. The National Living Wage is higher than the National Minimum Wage – and only applies to workers if they’re over 23. It does not matter how small an employer is, they still must pay the correct minimum wage. People classed as ‘workers’ must be at least school leaving age to get the National Minimum Wage. They must be 23 or over to get the National Living Wage. These rates do not apply to the self-employed, company directors and volunteers just to name a few. Full list is available at gov.uk.
The Rates changes are as follows:
| 23 and over | 21 to 22 | 18 to 20 | Under 18 | Apprentice | |
| Current Rate (April 2021) | £8.91 | £8.36 | £6.56 | £4.62 | £4.30 |
| New Rates (April 2022 onwards) | £9.50 | £9.18 | £6.83 | £4.81 | £4.81 |
2. National insurance
National Insurance rates will rise by 1.25% from 6 April 2022, as part of the government’s plan to introduce a health and social care levy where working people contribute to fund the NHS and the social care crisis.
The National Insurance lower earnings limits will increase by 3.1%. Upper earnings thresholds, however, are being frozen at £50,270.
By increasing the lower earnings limit, it means that you can earn slightly more before you pay National Insurance and therefore soften the blow of the increase in how much you pay.
The rates changes are detailed below:
Class 1 – employees
| Lower Earnings Limit | Lower Earnings Rate | Earnings between Limits | Earnings between Limits Rate | Upper Threshold | Upper Threshold Rate | |
| Current 2021-2022 | £9,568 | 0% | £9,568-£50,270 | 12% | £50,270 + | 2% |
| New 2022 – 2023 | £9,880 | 0% | £9,880-£50,270 | 13.25% | £50,270 + | 3.25% |
Class 2 & 4 – Self- Employed
| Lower Profit Threshold | Lower Earnings Rate | Earnings between Limits | Earnings between Limits Rate | Upper Threshold | Upper Threshold Rate | |
| Current 2021-2022 | £6,515 | 0% | £6,515-£9,568 | £3.05 per week (class 2) | £9,568 – £50,270 | 9% + £3.05 per week |
| New 2022 – 2023 | £6,725 | 0% | £6,725-£9,880 | £3.15 per week (class 2) | £9,880 – £50,270 | 10.25% + £3.15 per week |
Earnings of more than £50,270 will pay 3.25% + £3.15 per week (was 2% + £3.05 per week)
Class 3 voluntary contributions
You may want to pay voluntary Class 3 contributions if you have any gaps in your National Insurance record that might affect your eligibility for the state pension, or other contribution-based benefits.
This is changing from £15.40 per week to £15.85
Personal allowance threshold stays the same at £12,570.
Employer NIC
The employers National Insurance contribution is also set to rise from 13.8% to 15.05% on earnings above £8,840.
3. Capital gains reporting
In 2021, any gains made (and tax owed) under Capital Gain Tax regulations, had to file and pay tax due within 30 days. This was extended to 60 days in October 2021. The 60 day term only relates to properties sold on or after 27 October 2021.
For example, if you have sold a rental property, you will need to submit a residential property return to HMRC and make a payment on account towards your estimated tax bill.
4. Dividend tax
Similar to the National Insurance increases, Dividend tax is also set to rise by 1.25%. This is the tax which is paid on investment income such as company shares. The tax-free amount of £2,000 has remained unchanged. The rate changes are as follows:
| Basic Rate Band | Higher Rate Band | Additional Rate Band | |
| Current 2021 – 2022 | 7.5% | 32.5% | 38.1% |
| New 2022 – 2023 | 8.25% | 33.75% | 39.35% |
A full list of tax changes and rates can be found on gov.uk website.
As cost of living increase and tax rates change, it is ever more important to stay in control of your finances and plan ahead as much as possible.
If you need any support or are unsure how these tax changes may effect you please get in touch via email: enquiries@cedarhouseaccounting.co.uk or phone or office on 01778 338049
