New tax year 2022-23 – changes you need to know about for your business

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.

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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

Class 2 and Class 4 National Insurance rates and thresholds

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 bands and thresholds in Scotland

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.

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.