Following last year’s Autumn Budget announcement – and news of the national insurance rise that preceded it – what do you need to know to start preparing for the new tax year on April 6, 2022?
Tax Code Changes
No changes to the personal allowance were made in the 2021 Autumn Budget. This means that unless you receive an amended tax return notification for an employee, the standard tax code will remain at 1257L. The base rate limit also remains at £50,270 (including the personal allowance), while the higher rate limit also remains unchanged.
The same freeze also applies to:
- The inheritance tax threshold
- The lifetime pension allowance (remaining at the 2020/21 level (£1,073,100)
- The Annual Exempt Amount for Capital Gains Tax.
You will still be able to claim the £4,000 employment allowance for 2022/23, providing your employers’ Class 1 NI bill was less than £100,000 in the 2021/22 tax year.
National Minimum/Living Wage Increases
The new National Living Wage rate will come into effect from April 1, 2022.
This is five days before the new tax year begins on April 6, allowing workers to reap the rewards of the offset.
- National Living Wage (23 and over) from £8.91 per hour to £9.50
- National Minimum Wage (21-22) from £8.36 per hour to £9.18
- National Minimum Wage (18-20) from £6.56 per hour to £6.83
- National Minimum Wage (under-18s) from £4.62 per hour to £4.81
- The Apprentice Rate from £4.30 per hour to £4.81
NI Threshold Changes
Based on national insurance contributions, a new Uk-wide 1.25% “health and social care levy” will come in from April 2022. It will be paid by working adults, including people over the state pension age (unlike standard national insurance, which pensioners do not pay).
Your company will have to start paying 15.05% NI on an employee’s earnings over £175 per week (£9,100 per year), and employees will begin paying 13.25% NI on earnings over £190 per week (£9,880 per year). Employees’ NI will drop to 3.25% on incomes over £967 a week (£50,270 per year). But from April 2023, once tax systems have been updated, the levy will be separately split out on payslips as a separate “tax”. At this point, working adults above state pension age will start contributing.
In the interim (i.e. from April), a payslip message will be needed to highlight the change to employees. Suggested wording is awaited from HMRC.
Aside from the headline NI changes from the 2023/24 tax year, the levy will have implications for payroll in terms of things like:
- P11Ds, Benefits in Kind, Payrolling of Benefits and IR35
- P60s, P45s and P11D forms
- Attachment of earnings/Court Orders
These changes and impacts are why the levy is not being split out from April, as they will take time to change these across payroll software.
If you have employees under 21 (or apprentices under 25), check that you’re using the NI category letter M (or H for apprentices under 25).
From April 6, 2022, there will be several new NI Categories for employees based in the newly created Freeports, which will result in NI relief. These will be F, |, S and L and will be the equivalent of the current categories A, B, C and J.
The relief will be 0% Secondary Employer’s NI between the Secondary Threshold (ST) and the new Freeports Upper Secondary Threshold (FUST) of £25,000.
NI Holiday For Veterans
This came into effect from April 6 2021, and allowed Secondary Class 1 Employer NICs relief on the wages of veterans for the first 12 months of their civilian employment on earnings up to the Upper threshold known as the VUST.
A veteran must complete a minimum of one day of basic training in the regular armed forces, and there was no payroll change or new NI table letter for 2021/22. Instead, employers are to record claimable contributions, which will be claimed back in 2022/23 through a new digital platform
The process changes in the next tax year, and a new NI letter has been announced – letter ‘V’, which is to be used from April 6, 2022.
From April 2022 onwards, employers will apply for the relief in real-time through PAYE.
Workplace Pension Contributions
Private-sector employers in the UK have to automatically enrol eligible employees into the business’s defined-contribution workplace pension scheme. The criteria remain unchanged for the 2022/23 tax year.
Employees who earn more than £10,000 a year and are aged between 22 and state pension age must be automatically enrolled.
Employers must pay at least 3% of the employee’s qualifying earnings into their workplace pension while deducting at least 5% from their gross paycheque and paying that into the scheme on their behalf.
The combined minimum contribution is 8% of an employee’s monthly gross salary.