Early tax changes for 2022/23

Chancellor Rishi Sunak will deliver his Autumn Budget later this month, on 27 October 2021 – his second major fiscal announcement of the calendar year. A Spending Review is to be delivered at the same time, too.

While the Chancellor has the unenviable position of trying to claw back a colossal deficit, he’s also somewhat tied to pre-pandemic manifesto pledges made in 2019.

That some of those promises have already gone out the window should come as no surprise, following the unprecedented levels of public spending to shield the economy from COVID-19.

You have to wonder, though, what Sunak has up his sleeve, considering many of the annual tax allowances were frozen last spring and several tax changes for 2022/23 were revealed under the guise of the social care levy.

That leaves us in the unusual position of knowing many of the tax changes for 2022/23 more than six months before the new tax year starts, which we will attempt to round up now to give you virtually a full picture.

Frozen allowances

Subject to any further changes, Spring Budget 2021 confirmed the personal allowance will remain frozen at £12,570 up to and including 2025/26. The same applies to the thresholds involving income tax, capital gains tax, inheritance tax, and the VAT-registration thresholds.

For income tax, the basic-rate (20%) will apply on total income falling between £12,571 and £50,270. Above that up to £150,000, the higher-rate (40%) kicks in, before the additional-rate (45%) starts at £150,000.

There may well be some form of change to capital gains tax rates, but the annual exemptions will stay at £12,300 for individuals and £6,150 for most trusts.

The inheritance tax thresholds – the nil-rate band (£325,000) and residence nil-rate band (£175,000) – and the pensions lifetime allowance (£1,073,100) will be maintained at their existing levels until April 2026. As will the UK VAT-registration (£85,000) and deregistration (£83,000) thresholds.

NICs & dividends rates to increase

While the National Insurance contributions (NICs) thresholds and dividend allowance remain frozen for 2022/23, their respective rates will all increase by 1.25% from 6 April 2022.

The main and higher rates of Class 1 (employees’) NICs will increase to 13.25% and 3.25% respectively, while Class 1 (employers’) NICs will rise to 15.05% for 2022/23. The main and higher rates of Class 4 (self-employed) NICs rates will go up to 10.25% and 3.25%, respectively.

For dividends, basic-rate taxpayers will soon pay 8.75% tax on dividends from April 2022. Higher-rate taxpayers are now expected to pay 33.75%, and additional-rate taxpayers will pay 39.35%.

Potential changes

So other than stealth tax grabs from freezing certain allowances and tax increases to fund a social care overhaul in England, what other options does Sunak have?

For starters, business rates in England look certain to change. Inflation hit 3.2% in August and September’s inflation rate will determine the business rates increase for 2022/23. A fundamental report is due for publication this autumn, which could contain drastic change to this business tax.

Basis periods affect every unincorporated business in the UK and these seem almost certain to move to a tax-year basis, probably to coincide with the launch of Making Tax Digital for income tax from April 2024.

Stamp duty in England is also an interesting one when you consider the Treasury actually increased receipts during the recent property tax holiday. An outside bet could include stamp duty and council tax being merged to form some form or proportional property tax.

Whatever the tax changes are for 2022/23, we have our fingers on the pulse and will keep you updated in due course. For anything else, contact us on info@stapletonsaccountants.co.uk or call 01363 773191.