As anticipated, the Spring Statement was light on employment tax changes, with the Chancellor opting to focus on more economy-boosting activities. Here are the key changes that employers should be thinking about.

Basic rate of income tax reduction to 19% from April 2024

The Chancellor announced a reduction of 1% in the basic rate of income tax from 20% to 19%, with effect from April 2024, provided that the fiscal principles set out in the Spring Statement are met. Basic rate income tax relief for gift aid payments will continue to be available at 20% until 2027.

(See HM Treasury, Policy paper, Spring Statement 2022: Factsheet on Personal Tax2022 Spring Statement, paragraphs 3.9 and 4.73; HM Treasury: 2022 Spring Statement: policy costings page 7)

Employment Allowance increase from 6 April 2022

The maximum Employment Allowance (see Practice note, National Insurance contributions (NICs): Employment allowance) will increase by £1,000 from £4,000 to £5,000 from 6 April 2022. This will allow eligible businesses, charities and community amateur sports clubs to claim an increased reduction on their secondary Class 1 NICs and, from the 2023 to 2024 tax year onwards, their Health and Social Care Levy liabilities (secondary Class 1 NICs element).

(See HMRC, Policy paper, Employment Allowance increases to £5,000 from April 2022HM Treasury, Policy paper, Spring Statement 2022: Business support factsheet2022 Spring Statement, paragraphs 2.23 and 3.8; HM Treasury: 2022 Spring Statement: policy costings page 11)

National Insurance Primary Threshold and the Lower Profits Limit Changes

The annual National Insurance thresholds for employees and the self-employed - that is, the point at which individuals start to pay the primary rate of National Insurance contributions on their earnings or their profits - will increase from £9,880 to £12,570 per annum from July 2022 see Practice note, Tax rates and limits: Allowances).

This will represent a saving of around £330 per annum for many employees.

From April 2022, Class 2 NICs liabilities will be reduced to nil on profits between the Small Profits Threshold (SPT) and LPL. Therefore, earners between the SPT and LPL will not pay any Class 2 NICs.

Paragraph 2.11 of the Spring Statement confirms that following this change, income tax and NICs thresholds will remain aligned, going partway to meet the government's objectives of merging the income tax and NICs regimes. A draft Bill affecting the changes was published alongside the Spring Statement.

(See HMRC, Policy Paper, National Insurance Primary Threshold and the Lower Profits Limit increase and associated Class 2 changes in 2022 to 2023 tax yearHM Treasury, Policy paper, Spring Statement 2022: Factsheet on Personal TaxHM Treasury, Policy paper, Government support for the cost of living: factsheet2022 Spring Statement, paragraphs 2.11, 2.12, 3.6, and 3.7; HM Treasury: 2022 Spring Statement: policy costings pages 5 and 6)

Health and Social Care Levy

The proposed increase in NICs by 1.25% from 6 April 2022 to pay for reforms to the care sector and NHS funding in England has been retained.

The new Health and Social Care Levy will apply to earnings from 6 April 2022, although will operate slightly differently in the tax year 2022/23 compared to future tax years.

From 6 April 2022, the levy will be seen as an increase of 1.25% on the rates of:

  • Class 1 Primary (employee) and Secondary (employer) National Insurance Contributions on earnings
  • Class 1A and Class 1B Contributions paid by employers on benefits provided to employees
  • Class 4 National Insurance Contributions paid by the self-employed on profits.
  • so only those liable to pay NIC will be subject to the levy.

From 2023/24 onwards (once HMRC has developed new systems) the levy will operate as a separate payment to National Insurance Contributions, and it will also apply to those above the State Pension Age, which is currently not the case for Class 1 Primary and Class 4 NIC.

Existing reliefs for Class 1 Secondary NIC will also apply to the new levy for employers of apprentices under the age of 25, all employees under the age of 21, veterans, and new employees in freeports (from April 2022). The levy deduction will appear separately on employee payslips.

(See HMRC, Policy paper, Health and Social Care LevyHM Treasury, Policy paper, Spring Statement 2022: Business support factsheet2022 Spring Statement, paragraphs 2,11, 2.23, 3.6, 3.8, 3.21, 4.12 and 4.14; HM Treasury: 2022 Spring Statement: policy costings page 15)

Proposals for future reform

Apprenticeship levy

In an attempt to encourage businesses to invest more in training, the government will review the effectiveness of the current tax system and, specifically, the apprenticeship levy in meeting this aim (see Practice note, Apprenticeship levy).

Reforming tax reliefs and allowances

The Spring Statement confirms that the government will continue its work to reform tax reliefs and allowances "ahead of 2024" and will announce its plans before any reforms are implemented.

(See 2022 Spring Statement, paragraphs 4.69 and 4.73)

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