Budget Highlights - March 2022
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Personal Tax, Employment Tax and National Insurance →
Who may be eligible for the Employment Allowance? →
Dividend tax to rise from April →
National Living Wage set to rise →
VAT Reduction for Energy Saving for Domestic Customers →
Fuel duty cut by 5p per litre →
All VAT-registered businesses must register for MTD →
Enhanced capital allowances: super deduction →
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Personal Tax, Employment Tax and National Insurance
National Insurance thresholds – The annual National Insurance Primary Threshold and Lower Profits Limit, for employees and the self-employed respectively, will increase from £9,880 to £12,570 from July 2022. Directors in limited companies pay NICs on an annual basis, and for the 2022-23 tax year, will be able to earn £11,908 before paying Class 1 NICs. The annual figure for directors is £11,908 and differs to employees because this accounts for 13 weeks of £9,880 and 39 weeks of £12,570. That means the benefit directors will receive in 2022-23 is in line with employees. Directors may take this level of salary, provided their personal tax allowance is not being used up by another source of income.
Basic rate of income tax – The Government will reduce the basic rate of income tax to 19% from April 2024.
Employment Allowance – The Employment Allowance will increase from £4,000 to £5,000 from April 2022, meaning eligible employers will be able to reduce their employer NICs bills by up to £5,000 per year. This will particularly help medium sized business who employ a number of staff and pay employer NIC. The first £5000 will be tax free.
Who may be eligible for the Employment Allowance?
You can claim the Employment Allowance if you are a business or charity (including Community Amateur Sports Clubs) that pays employer Class 1 NICs on your employees’ or directors’ earnings.
There are some exclusions to be aware of though, such as if your company has connected companies or charities that are already claiming the Allowance, you are a public authority or you have a public nature (unless you are a registered charity) and larger companies where the total National Insurance liability is more than £100,000.
You also cannot claim if both of the following apply:
You are a company with only one employee paid above the Class 1 National Insurance secondary threshold
The employee is also a director of the company
Dividend tax to rise from April
Individuals who receive dividend income will also face a higher tax bill as all rates of dividend tax will increase by 1.25% from April 2022.
The dividend tax is applicable on dividend income above the frozen £2,000 dividend allowance and above the £12,570 personal allowance. Dividends on assets held in ISAs are excluded from the dividend tax.
From the 2022-23 tax year, basic rate dividend tax will be charged at 8.75% instead of 7.5% for 2021/22. Higher rate dividend taxpayers will be charged at 33.75% instead of 32.5% and additional rate dividend taxpayers will pay 39.35% instead of 38.1% respectively.
National Living Wage set to rise
The National Living Wage will rise on 1 April 2022 by 6.6% to £9.50 an hour. Young people and apprentices will also see increases in the National Minimum Wage rates.
VAT Reduction for Energy Saving for Domestic Customers
To encourage households to improve energy efficiency and keep their energy costs down, a new 0% VAT rate will be introduced for the installation of energy saving materials, such as solar panels and insulation. The new rate will apply to domestic installations that take place in the UK (but not Northern Ireland) between 1st April 2022 until 31st March 2027, and will replace the current 5% rate. Complex eligibility conditions for this relief will also be removed, making it available to more households than before.
Fuel duty cut by 5p per litre
In only the second time in 20 years, and as widely anticipated in the press prior to the Spring Statement, the Chancellor announced a 5p per litre cut in the duty on petrol and diesel.
This will take effect from 6pm on 23rd March 2022 and is expected to be in place for the forthcoming 12 months.
The cut is anticipated to save households and businesses around £2.4bn in 2022/23, with the average car driver saving £100, van driver £200 and haulier £1,500 per annum.
Making Tax Digital (MTD)
MTD for ITSA will be introduced from 6 April 2024. This impacts sole traders and landlords, with income over £10,000. General partnerships will not be required to join MTD for ITSA until 6 April 2025.
All VAT-registered businesses must register for MTD
In July 2020, it was announced that all VAT-registered businesses must file digitally through Making Tax Digital (MTD) from April 2022, regardless of turnover.
HMRC urges VAT-registered businesses to sign up for Making Tax Digital for VAT before 1 April 2022.
The reduced rate of VAT of 12.5% ends on 31 March 2022 for the hospitality sector returning to the standard rate of VAT of 20% from 1 April 2022.
Enhanced capital allowances: super deduction
This introduces increased reliefs for expenditure on plant and machinery. For qualifying expenditures incurred from 1 April 2021 up to and including 31 March 2023, companies can claim in the period of investment:
• A super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main-rate writing-down allowances
• A first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances
Annual Investment Allowance (AIA)
Annual Investment Allowance is available until 31 March 2023. Businesses will therefore have until March 2023 to consider bringing forward capital investments of between £200,000 and £1m, accessing upfront support by claiming tax relief on such costs in the year of investment.