Chancellor Rishi Sunak unveiled his Spring Statement on March 23rd, amidst the fastest price increases seen in the past 30 years. 

Inflation is expected to peak at 8.7% in the final quarter of 2022, with significant effects on individuals and small businesses. Energy costs alone are estimated to rise on average by 54% from April 2022.

The Spring Statement included announcements on cuts in fuel duty, it raised the threshold at which people start paying National Insurance from July and included a pledge to cut the basic rate of income tax before the next general election. 

Summary Points of the Spring Statement 2022

The key points announced in the Chancellor’s spring statement are as follows:

• Fuel duty was reduced by 5p per litre for one year
• The increase in National Insurance Contributions (NIC), called the Health and Social Care Levy, will go ahead as planned from April 2022
• The threshold to start contributing NIC will rise from July for Class 1 employees NIC, Class 2 self-employed NIC and Employers NIC (for smaller employers)
• The basic rate of income tax will be cut by 1% from 20% to 19% from April 2024
• The planned reforms for R&D relief to be implemented from April 2023 will go ahead with some exceptions to the block in deductions for oversees R&D work including clinical trials, regulatory reasons  and geographical factors. Furthermore, companies will be able to claim R&D relief on projects supported by pure maths. Further reforms to R&D relief are being considered and expected to be published in the summer
• VAT on energy-saving materials like insulation will be reduced from 5% to 0% from April 2022 to April 2027
• The Apprenticeship Levy will be reviewed to determine whether the scheme is “doing enough”
• A review of the Enterprise Management Incentives has concluded that they do not require reform
• Several tax reliefs will be simplified or removed in the lead-up to 2024

How to prepare for the changes in National Insurance Contributions and Thresholds

Businesses and employers must ensure that their payroll systems are ready to handle the increase in NICs in April 2022 and the new Health and Social Care Levy in April 2023. 

In addition, changes to the threshold which will increase when NIC has to be paid will come into effect on July 6th 2022. According to HMRC, the increase in the threshold should save the typical employee over £330 per year.

Changes to National Insurance Contributions for employees and employer

From April 6th 2022, the Class 1 rate of National Insurance Contributions will be increased from 12% to 13.5% on earnings between £9,880 and £50,270 per year. Contributions on earnings of more than £50,270 will increase from 2% to 3.25%.

From July 6th 2022, the threshold to pay the new increased rate of 13.5% for Class 1 NIC will increase from £9,880 as it stands currently to £12,570. No changes will apply to incomes above £50,270. 

The changes in NIC will impact take-home pay for employees across the board. For example, an employee making £25,000 per year today has a net income of £20,662. From April, their net income will be reduced to £20,511 and increased again from July to £20,867. This increases take-home pay for an employee earning £25,000 between today and July by £205.

On the other hand, an employee earning £60,000 today takes home £43,489. Their take-home pay will decrease to £42,900 in April and increase again to £43,257 in July. The employee will take home £232 less from July.

The contributions to National Insurance paid by employers will rise from 13.8% to 15.05% in April 2022.

Changes to National Insurance Contributions for the self-employed

The self-employed pay Class 2 and Class 4 NICs depending on their profits. 

Class 2 weekly contributions to National Insurance will increase to £3.15 a week in 2022-23. Class 4 rates on the other hand will increase by 1.25%. 

However, the lower earnings limit thresholds will be increased to £12,570 reducing the tax burden on profits for most self-employed people in the UK. 

Currently the self-employed with profits up to £9,568 pay £3.05 per week (Class 2), and Class 4 contributions of 9% kick in for profits between £9,568 and £50,270 in addition to Class 2. From July 6th 2022, the self-employed making profits under £12,570 will not have to contribute to National Insurance.

Class 3 contributions, usually paid on a voluntary basis to avoid contribution gaps, will increase from £15.40 per week to £15.85 per week from July 2022.

Changes to National Insurance Credits for state pension etc.

Paying National Insurance builds an employee’s entitlement to certain benefits, such as the state pension. The lower earnings limit to receive a National Insurance credit will remain at £6,396 for employees.

For the self-employed, the current weekly flat-rate contribution will be scrapped for profits between £6,515 and £9,568. Anyone exceeding the new increased small-profits threshold of £6,725 will continue to receive National Insurance credits.

The 2022 Spring Statement can be accessed in full at https://www.gov.uk/government/publications/spring-statement-2022-documents

Do you have questions about the Spring Statement? Any concerns about payroll and upcoming changes in National Insurance Contributions? Have a look at our services and feel free to get in touch with us.
You can book a consultation at info@acuaccounts.com or call us directly on 0203 907 9027.