Against a background of the tragic news still coming out of Ukraine, increasing inflation – expected to reach 7.4% this year and only coming under control by 2024, and lower growth prospects for the UK economy, Rishi Sunak announced a couple of relatively small measures intended to help affordability over the next year.
By way of a little explanation and in order to provide a little guidance on how these may help you:
The previously announced Health and Social Care Levy of 1.25% for will increase employee’s, employer’s and self-employed (Class 4) National Insurance from 6 April 2022, as well as the rate of Income Tax applied to dividends
- The threshold at which employees will begin to pay National Insurance will rise from July 2022 to £12,570 and be in line – for the first time in many years – with the Income Tax personal allowance
- There will be no corresponding rise in Employers’ National Insurance thresholds which will remain at the previously announced £9,100 per annum throughout 2022/23
- Many small and medium sized businesses will be able to claim relief – the Employers’ Allowance – from the first £5,000 of Employer’s National Insurance however (up from £4,000) provided that:
- they have employees (other than a sole director) earning above the Employer’s National Insurance limit of £9,100
- they do not have another company under the same control claiming the Employers’ Allowance
- they do not carry out more than 50% of their work in the public sector (e.g. NHS/GP services, refuse collection)
- Self-employed individuals will begin to pay Class 2 National Insurance only once profits reach £9,880, but will receive National Insurance credits on profits above £6,725. Likewise, Class 4 National Insurance will only apply on profits above £11,908 in 2022/23.
What does this mean for me?
Most business owners currently remunerating themselves by way of small salary and dividends should consider increasing their salaries as follows:
- From April-June 2022 – draw a gross salary of £823 per month, with any remaining drawings taken as dividends (in line with shareholdings/dividend rights)
- From July 2022 onwards – draw a gross salary of £1,047.50 per month, with any remaining drawings taken as dividends (in line with shareholdings/dividend rights)
- This route will incur Employer’s National Insurance – before claiming Employer’s Allowance (if applicable) – of £421
- However, drawing this increased salary of £11,896 – as compared to a salary of £9,100 so as to incur no Employer’s National Insurance – will save Corporation Tax of £531-611
- Employee’s/director’s receiving at least £6,396 per annum will receive a credit towards their state benefits and state pension for the year
Research & Development relief
- From April 2023, relief will be extended to include all cloud accounting costs (including storage); necessary expenditure incurred outside of the UK due to geographic, environmental or other conditions; and any expenditure on pure mathematics where required for the project.
- There was a pledge made by the Chancellor to reduce the basic rate of Income Tax from 20% to 19% in 2024.
VAT – Domestic Energy Saving Materials
- Temporary VAT Cut On Domestic Energy Saving Materials (ESM’s)
- With effect from next Friday, consumers can benefit from a temporary VAT cut on the supply and installation of ESM’s. This includes solar panels, heat pumps and roof insulation (as well as wind and water turbines).
- The current rate of 5% is overly complicated, permitting the relief only in limited circumstances. These include specific social conditions, such as relief for the elderly, together with a values-based restriction which looks at the value of the ESMs as a proportion of the total supply (labour vs materials).
- From 1 April, the supply of domestic ESMs will be zero rated across the board, regardless of social situation or cost of materials vs labour.
VAT – Hospitality
- The planned rise in VAT for the hospitality sector back to 20% will take place as planned on 1 April
- There will be a temporary cut in fuel duty of 5p per litre effective from 6pm on 23 March 2022 for one year
As with any government announcements, if you would to discuss the effect on your affairs, please contact your relationship advisor.