With multiple changes to tax bands, minimum wages and National Insurance contributions, the new 2022 tax year will require more amendments than usual for employers.
In this guide, the SAS Accounting team explains some of the core changes to be aware of and factors to build into your workforce budgetary plans for the year ahead.
Preparation, as always, is key, so please get in touch for further advice about any of the information included here or for assistance calculating the effects on your monthly staffing costs.
National Insurance Increases
As outlined in our previous Guide to the National Insurance Contribution Increases, in April 2022, employees and employers will see greater payroll deductions.
Due to be superseded by a new health and social care tax in 2023, the cost impacts are as follows:
- Class 1 and Class 4 contributions, paid by employees and the self-employed, respectively, will increase by 1.25% across the board.
- Secondary Class 1, 1A and 1B contributions, paid by employers, will also increase from 13.8% to 15.05%.
- In 2023/24, employers NI will revert to 13.8%, but there will still be a 1.25% cost increase in the form of a levy.
Earnings and profit above the £8,840 threshold will be subject to the higher NI rates and future tax charges - find more information on the government's Rates and Thresholds pages.
Income Tax Changes in 2022
Frozen allowances have been applied to everything from income tax to inheritance thresholds, VAT registrations and Capital Gains Tax.
These 'stealth taxes' coupled with rising minimum wages (more on that shortly!) inevitably mean that millions of workers might find their income tips over into the next tax bracket.
The basic rate of 20% income tax will apply to everything over £12,571, with the higher rate of 40% kicking in from £50,270.
Earnings over £150,000 will be subject to the additional rate of 45%.
Capital Gains Tax allowances are frozen at £12,300 for individuals, which may need consideration if you operate any employee share schemes.
The Impact of Dividend Taxes on Employers
Many businesses reward directors and owner-managers with dividends, often seen as a tax-efficient way to balance salaried income and profit shares.
In April 2022, dividend tax will also rise by 1.25% across the UK, resulting in the following increased tax deductions:
- Basic rate taxpayers: dividend tax increases from 7.5% to 8.75%.
- Higher rate taxpayers: the tax rises from 32.5% to 33.75%.
- Additional rate taxpayers: dividends will be taxed at 39.35%, from 32.5% in 2021/22.
Structuring a director’s pay may require revision to ensure an optimal combination of wages and dividends to meet remuneration agreements without exposing income to unnecessarily high taxes.
Please visit our article Finding the Balance for more information about the ideal structure for the 2021/22-tax period.
Minimum Wages from April 2022
One of the big announcements in the 2021 autumn budget was around minimum wages. The government has set pay rates at £9.50 an hour for those aged 23 and above.
The new National Minimum Wage rates look like this:
| 2021/2022 | 2022/23 | Increase | |
| National Living Wage | £8.91 | £9.50 | 6.6% |
| 21-22 Year Olds | £8.36 | £9.18 | 9.8% |
| 18-20 Year Olds | £6.56 | £6.83 | 4.1% |
| 16-17 Year Olds | £4.62 | £4.81 | 4.1% |
| Apprentices | £4.30 | £4.81 | 11.9% |
| Accommodation Offset | £8.36 | £8.70 | 4.1% |
All of these increases apply from 1st April 2022, so it's essential to ensure that your wages, whether paid hourly, weekly, or monthly, reflect the new regulations.
Preparing Your Payroll For the New Tax Year
As we can see, payroll costs for many businesses will undoubtedly creep up.
Still, it's wise to look at the bigger picture and think about how frozen thresholds and higher dividend taxes may influence your compensation agreements.
There are also several employment schemes as part of the Plan for Jobs, including the Kickstart Scheme, which provides funding to support 16-24 years olds seeking work and currently receiving Universal Credit.
Note that Kickstart applications are open until 17th December 2021.
If you'd like any support assessing how all of these changes will affect your cash flow or help to evaluate employment schemes that might be helpful to your business, please get in touch with SAS Accounting at your convenience for more tailored guidance.
