Today the Chancellor delivered his Spring Statement which provided an update on the status of the economy as well as changes to taxation with a view to helping the rising cost of living. For small business owners and employees here are the key headlines:
From July this year the National Insurance free threshold will increase to £12,570 from £9,880. This brings it in line with the current income tax free threshold so employees will earn their first £12,570 each tax year completely tax free once implemented. “This is a tax cut worth over £330 for a typical employee in the year from July 2022”. It’s worth noting that at the time of writing there is not expected to be a change to the employer’s national insurance threshold so employers will still pay 15.05% Class 1 contributions for typical employees who earn between £9,880 - £50,270 each year.
The Employment Allowance will increase to £5,000 from £4,000 in April. This allowance is for small business employers and covers their employer’s national insurance contributions until the allowance is fully utilised. This is therefore a £1,000 saving to all small business employers.
It’s worth highlighting that there is no change to the announcement in national insurance and dividend rates made in the autumn last year. Effective from April 2022 employee’s national insurance, employers’ national insurance and dividend tax all have an extra 1.25% levy on which will be spent on the NHS and social care across the UK. A typical employee will therefore have a new rate of 13.25% with employers 15.05%. Basic rate tax payers will have a new dividend tax rate of 8.75% with higher rate tax payers new rate becoming 33.75%.
Full details of the Spring Statement can be found here.
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