2022 has been a very busy year for Payroll Professionals. With cabinet changes and the rotating door, each time has seen huge changes to policies. At the beginning of this financial year, I personally thought that UK Payroll professionals may get a short break after the Coronavirus pandemic which saw many of us being sick of Furlough and the Job Retention Scheme (CJRS). But instead we ended up dealing with three National Insurance (NI) changes in one financial year...and we are only in month 8!
On 17 November 2022 Chancellor of the Exchequer, Jeremy Hunt, delivered the Autumn Statement. Less than 8 weeks after the tax cut in the mini budget which saw the pound crash against the dollar. Chancellor Jeremy Hunt has already reversed a lot of Mr Kwarteng's mini-budget but is looking to take this further in order to cut the UK's debt. The chancellor admitted , “We must make decisions of eye-watering difficulty”, which clearly didn't sound good!
Here is how it translated to Payroll:
Tax
Jeremy Hunt said he wanted to "Avoid a Doom loop of ever higher taxes"..."you cannot borrow your way to growth".
The first change to Tax was the Earnings Threshold for the 45p additional rate tax, this has been reduced from £150,000 to £125,140 for 6 April 2023. This didn't come as a shock to many as it was already rumoured prior to its announcement.
We have already seen a freeze in the Income Tax and Inheritance Tax threshold until 2026, however, this has been extended for a further 2 years, and is now frozen until 2028.
The married couples’ and blind person’s allowances will be uprated with inflation at 10.1%. For 2023/24 married couples’ allowance will be between £4,010 and £10,375 and the blind person’s allowance will rise to £2,870.
Dividend allowance is to be reduced from £2,000 to £1,000 which will half again in April 2024 to £500. The tax-free allowances for capital gains tax will also be reduced from £12,300 this year to £6,000 in 2023/24 and £3,000 in 2024/25.
Rate of income tax applied to dividends remain as previous, Basic Rate 8.25%, Higher rate 33.75% and Aditional rate 39.35%.
National Insurance (NI)
We have seen both threshold and rate changes in the current tax year. Like income tax and inheritance tax, NI Thresholds have also been frozen for a further 2 years, taking us to April 2028. This means that the primary threshold (PT) and the upper earnings limit (UEL) will now be maintained until April 2028. The freeport upper secondary threshold (FUST) will remain at £25,000 for the same period. The upper secondary threshold (UST), apprentice upper secondary threshold (AUST) and veteran upper secondary threshold (VUST) will also stay fixed, in alignment with the UEL.
The secondary threshold (ST), payable by employers will be fixed at £9,100 until April 2028.
Employment Allowance
This will remain at £5,000, there are no planned changes for now.
National Living Wage (NLW) and Benefits Increase
Jeremy Hunt went on to say that he accepted the recommendation of the Low Pay Commission (LPC) to increase the NLW by 9.7% next year (from April 2023). This is the largest increase in the NLW ever. Hunt said, “It is expected to benefit over two million of the lowest paid workers in the country and keeps us on track for our target to reach two thirds of median earnings by 2024”.
The minimum wage rates apply from pay reference periods beginning on or after 1 April 2023 at the following:
Pensions
It's been confirmed that the triple lock will be honoured for April 2023, and that the State Pension will see an increase of £870 which represents the biggest ever increase.
State Pensionable Age
The governments review on the state pensionable age will be published early 2023.
AOB
Benefits
"There have also been some representations to keep the uplift to working age and disability benefits below the level of inflation, given the financial restraints that we face, but that would not be consistent to protect the most vulnerable". Mr Hunt went on to say, "Today I also commit to uplift such benefits by inflation, with an increase of 10.1%", an expensive commitment costing £11b.
On average, a family on universal credit will benefit next year by about £600.
Pension Credit has also been increased by 10.1%, which is worth up to £1,470 for a couple and £960 for a single pensioner within the most vulnerable households.
Energy Price Guarantee (EPG)
£55 Billion pounds to help households and business' with their energy bills, one of the largest support plans in Europe. From April the Energy Price Guarantee (EPG) will be continued for a further 12 months and raised to the higher level of £3,000 per year for the average household. This is, on average, £500 of support for every household in the country.
My opinion:
NLW increase is great for many low income households, however, this comes at the expense of an employer, not the government! It means that pension contributions also increase, as well as the companies Employer NI contributions which hasn't been counter balanced by an increase in Employment Allowance.
The NLW increase also reduced the gap to those that have fought tooth and nail for their increases, are they to expect a 9.7% increase too? In order to bridge the increase gap. Once again, those working in low responsibility roles will be on the same rate as others who have far more responsibility.
The Tax and NI freezes for a further 2 years were another low blow. Every year I look forward to receiving a few extra points on my tax code...that's a few extra pounds that I won't pay tax or NI on. Freezing this until 2026 was harsh and didn't go down well with many, however, tories have now added an extra 24 months onto this, and my feeling is that it won't end there. With the extra 2 years freeze being extended so easily and with minimal appeal, I think they will try this again before 2028 comes about and we can say goodbye to those small incremental increases for the foreseeable!
The apparent scrapage of the dividend allowance doesn't bowed well with me either, for many company directors dividends are key to keeping their personal finances afloat. Now it will cost them more to take money out from their businesses. Again, this is another benefit that I feel has travelled under the radar.
The pensionable age is also being reviewed, I'm 47 and certain that I will NEVER see my retirement if the government continue to increase the pensionable age.
On a more positive note, I was impressed with the focus on Pensioners, Pension Credits and Disability Support such as Universal credits. These, in my opinion, we're important areas of spending. PL
Hopefully there won't be many changes before the inevitable Spring Statement. I do hope that the UK can hold its current Prime Minister for longer than an Iceberg Lettuce takes to perish.
Comments