The new tax year is just around the corner, arriving on 6 April 2022. Like many business owners, you may have been too busy to make the necessary preparations or even think about what that entails. But do not worry – that’s what we’re here for. Read on to find out what changes you can expect to see in 2022-23.
Key changes for the new tax year – 2022-23
Increases in National Insurance and dividend tax rates are the most notable changes for the new tax year. The rises will affect many workers and employers, as well as limited company directors and shareholders.
Income Tax rates and thresholds will remain the same for England & Wales and Northern Ireland, but there will be some adjustments to Scottish Income Tax.
There will be no changes to Corporation Tax or VAT rates and thresholds. This is good news if you run a limited company or VAT-registered business. Corporation Tax will remain at 19% and the VAT registration threshold at £85,000.
National Insurance contributions (NICs)
Class 1 National Insurance contributions (NICs) are paid by employees (on their wages) and employers (on their employees’ wages). From 6 April, NICs will increase by 1.25 percentage points. This will take the main rates of National Insurance to 13.25% for employees and 15.05% for employers.
Similarly, Class 2 and Class 4 National Insurance rates will increase. This will impact those who pay taxes through Self Assessment, including sole traders, members of partnerships and LLPs, and limited company shareholders. The Class 4 main rate will increase by 1.25 percentage points, from 9% to 10.25%. Class 2 will rise to £3.15 per week.
National Insurance thresholds are also increasing, meaning that you can earn more before you start paying NICs on earnings. The measure will happen in two stages – a small rise from 6 April to 5 July, then a more significant one on 6 July. The second increase will bring the Class 1 Primary Threshold (PT) and Class 4 Lower Profits Limit (LPL) in line with the Personal Allowance for Income Tax.
From 6 April, Class 2 National Insurance liabilities for the self employed will be reduced to nil on profits between the Small Profits Threshold (SPT) and the LPL.
The table below sets out the changes to National Insurance rates and thresholds for the new tax year.
Class 1 National Insurance rates and thresholds
2022-23 | 2021-22 | |
Employees Class 1 NICs | 13.25% on earnings between PT and UEL
3.25% on earnings above UEL |
12% on earnings between PT and UEL
2% on earnings above UEL |
Employer Class 1 NICs | 15.05% on employees’ wages above the ST | 13.8% on employees’ wages above the ST |
Lower Earnings Limit (LEL) | £123 per week
£533 per month £6,396 per year |
£120 per week
£520 per month £6,240 per year |
Primary Threshold (PT) | From 6 April to 5 July:
£190 per week £823 per month £9,880 per year From 6 July: £242 per week £1,048 per month £12,570 per year |
£184 per week
£797 per month £9,568 per year |
Secondary Threshold (ST) | £175 per week
£758 per month £9,100 per year |
£170 per week
£737 per month £8,840 per year |
Upper Earnings Limit (UEL) | £967 per week
£4,189 per month £50,270 per year |
£967 per week
£4,189 per month £50,270 per year |
Class 2 and Class 4 National Insurance rates and thresholds
2022-23 | 2021-22 | |
Class 2 | £3.15 per week when profits exceed LPL | £3.05 per week when profits exceed SPT |
Class 4 | 10.25% on profits between LPL and UPL
3.25% on profits above UPL |
9% on profits between LPL and UPL
2% on profits above UPL |
Small Profits Threshold (SPT) | £6,725 per year | £6,515 per year |
Lower Profits Limit (LPL) | From 6 April to 5 July:
£9,880 per year
From 6 July:
£12,570 per year |
£9,568 per year |
Upper Profits Limit (UPL) | £50,270 | £50,270 |
If you pay some or all of your tax and National Insurance through Self Assessment, your Class 4 NICs for 2022-23 will be calculated on a split-year basis. This is due to the fact that the self-employed (and company shareholders) do not report their profits or pay NICs until the end of the tax year.
To account for this, an average threshold of £11,908 will apply – 13 weeks at £9,880 (for 6 April-5 July) and 39 weeks at £12,570 (from July 6).
Income Tax
There are no changes to Income Tax rates or thresholds in England & Wales and Northern Ireland for the new tax year. However, there are some small changes to Scottish starter rate and basic rate thresholds (i.e., the amount you can earn before paying Income Tax).
The table below illustrates the rates and thresholds for 2022-23.
Income Tax bands and thresholds in England & Wales and Northern Ireland
Income Tax band | 2022-23 thresholds | 2021-22 thresholds |
0% (Personal Allowance) | Up to £12,570 | Up to £12,570 |
20% (Basic rate) | £12,571 to £50,270 | £12,571 to £50,270 |
40% (Higher rate) | £50,271 to £150,000 | £50,271 to £150,000 |
45% (Additional rate) | Over £150,000 | Over £150,000 |
Income Tax bands and thresholds in Scotland
Income Tax band | 2022-23 thresholds | 2021-22 thresholds |
0% (Personal Allowance) | Up to £12,570 | Up to £12,570 |
19% (Starter rate) | £12,571 to £14,732 | £12,571 to £14,667 |
20% (Basic rate) | £14,733 to £25,688 | £14,668 to £25,296 |
21% (Intermediate rate) | £25,689 to £43,662 | £25,297 to £43,662 |
41% (Higher rate) | £43,663 to £150,000 | £43,663 to £150,000 |
46% (Top rate) | Over £150,000 | Over £150,000 |
Tax on dividends
The annual tax-free dividend allowance for the new tax year will remain at £2,000. However, dividend tax rates will increase by 1.25 percentage points. As a result, limited company shareholders will pay more tax on dividend income from shares. The table below outlines the rates you will pay in 2022-23, in accordance with your Income Tax band. These rates apply to taxpayers in England & Wales, Scotland, and Northern Ireland.
Tax band | 2022-23 | 2021-22 |
Within Personal Allowance | 0% | 0% |
Basic rate taxpayer | 8.75% | 7.5% |
Higher rate taxpayer | 33.75% | 32.5% |
Additional rate taxpayer | 39.35% | 38.1% |
The changes to dividend tax rates have a knock-on effect on overdrawn directors’ loan accounts. The reason is that Section 445 tax (under the Corporation Tax Act 2010) is linked to the dividend higher rate. Consequently, tax on directors’ loans made from 6 April 2022 will increase by 1.25 percentage points, from 32.5% to 33.75%.
Employment Allowance
The annual Employment Allowance is increasing by £1,000. If you’re an eligible employer, you will be able to claim a £5,000 employment allowance for the new tax year. This could alleviate some of the pressure from the increase in your Class 1 National Insurance contributions.
National Minimum Wage
On 1 April, the National Minimum Wage (NMW) will rise from £8.90 per hour to £9.50 per hour. If you pay any of your employees the minimum wage, you will need to make the necessary adjustments to your payroll to reflect the new rates of pay.
Statutory Pay for employees
On 3 April, statutory pay for parents increases from £151.97 per week to £156.66 per week. This applies to Statutory Maternity, Paternity, Adoption, Shared Parental, and Parental Bereavement Pay. Maternity Allowance will change from £96.35 per week to £99.35 per week.
Statutory Sick Pay (SSP) will also increase on 3 April, from £96.35 per week to £99.35 per week. If you’re an employer, this is the minimum amount of sick pay that you must pay to eligible employees and workers.
So there you have it, we have covered the changes you need to know about for your business. We hope you have found this post helpful. Please leave a comment if you have any questions.
Thank you for making it much easier to understand taxes and the new changes. This is such a useful blog post!
Hi Emine
Thank you for your comment. We are glad you found it helpful.
Best regards,
The 1st Formations Team
Thank you for providing the Table with National Insurance rates and thresholds. This is easily the most straightforward blog post I’ve read about it!
Hi Amelia
Thank you for your kind comment. Your praise is greatly appreciated!
Best regards,
The 1st Formations Team
In the long run, would it benefit me to incorporate my business instead of operating as a sole trader? I sole trade currently and business revenues will affect what tax band I’m under based on the new rules.
Hi Angus
Thank you for your comment.
With regards to your question sole trader vs limited company – we would recommend a limited company as a trading vehicle for several reasons other than tax, e.g. limited liability, reputational benefits, etc.
Please have a look at our YouTube video: Limited company or sole trader? We help you decide.
Best regards,
The 1st Formations Team
Great blog! Really informative
Hi Osman
Thank you for your kind words – we are happy you found this blog helpful.
Best regards,
The 1st Formations Team
This can be so confusing, but 1st Formations have made everything so easy to understand, once again! Thank you!
Hi Sophia
Thank you for your lovely comment – most appreciated.
Best regards,
The 1st Formations Team