5th April 2022
As usual, our summary has everything individuals and businesses need to know about the 2022/23 tax year, including rates and allowances.
The personal allowance
The personal allowance is £12,570 for the 2022/23 tax year and will be frozen until the tax year to 2025/26 as announced by the Chancellor in March 2021.
There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. For 2021/22, there will be no personal allowance where adjusted net income exceeds £125,140.
The marriage allowance
The marriage allowance permits certain couples, where neither pays tax at more than the basic rate, to transfer £1,260 of their personal allowance to their spouse or civil partner.
The marriage allowance reduces the recipient’s tax bill by up to £250 in the tax year (6 April to 5 April the next year). The marriage allowance was first introduced in 2015/16, and some couples are entitled to claim but have not yet done so. You can backdate your claim to include any tax year since 5 April 2017 that you were eligible for Marriage Allowance where the entitlement conditions are met.
Tax bands and rates
The basic tax rate remains at 20%, and the 40% band applies for taxable income over £50,270 for those who are entitled to the full personal allowance.
The Government announced that the basic rate band would be frozen at £37,700 for the tax years 2022/23 to 2025/26.
The table below shows the tax rates you pay in each band if you have a standard Personal Allowance of £12,570.
|Band||Taxable Income||Tax Rate|
|Personal Allowance||Up to £12,570||0%|
|Basic Rate||£12,571 to £50,270||20%|
|Higher Rate||£50,271 to £150,000||40%|
|Additional Rate||over £150,000||45%|
The tax on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland from taxpayers resident elsewhere in the UK. The Scottish income tax rates and bands apply to income such as employment income, self-employed trade profits and property income.
The table shows the 2022/23 Scottish Income Tax rates you pay in each band if you have a standard Personal Allowance of £12,570. Anyone who earns over £125,140 does not get a Personal Allowance.
|Tax Band||Taxable Income||Scottish Tax Rate|
|Personal Allowance||Up to £12,570||0%|
|Starter Rate||£12,571 to £14,732||19%|
|Basic Rate||£14,733 to £25,688||20%|
|Intermediate Rate||£25,689 to £43,662||21%|
|Higher Rate||£43,663 to £150,000||41%|
|Top Rate||over £150,000||46%|
From April 2019, the Welsh Government has had the right to vary the income tax rates payable by Welsh taxpayers. The UK government has reduced each of the three income tax rates paid by Welsh taxpayers by 10 pence. That 10p and any additional payments go to the Welsh government.
This means the tax payable by Welsh taxpayers is the same as that payable by English and Northern Irish taxpayers.
Tax on savings income
The Savings Allowance applies to savings income and income such as bank and building society interest. The available allowance in a tax year depends on the individual’s marginal rate of income tax.
Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers, the allowance is £500. No allowance is due to additional rate taxpayers.
Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income, less allocated allowances and reliefs) exceeds £5,000.
Tax on dividends
The first £2,000 of dividends is chargeable to tax at 0% (the Dividend Allowance). Dividends received above the allowance are taxed at the following rates:
- 8.75% for basic rate taxpayers
- 33.75% for higher rate taxpayers
- 39.35% for additional rate taxpayers.
Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.
To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.
Universal Credit is a single payment made up of different amounts depending on an individual’s circumstances. There is no entitlement if an individual’s capital is worth more than £16,000.
The Universal Credit taper rate is reduced from 63% to 55%, meaning Universal Credit claimants will be able to keep an additional 8p for every £1 of net income they earn.
Universal Credit is replacing the following benefits:
- Child Tax Credit
- Housing Benefit
- Income Support
- income-based Jobseeker’s Allowance (JSA)
- income-related Employment and Support Allowance (ESA)
- Working Tax Credit
To find out more, please visit the government’s website by clicking here.
The current earliest age at which most pension savers can access their pension savings without incurring a tax charge is age 55. From April 2028 this earliest age will rise to 57. This will affect individuals born after
5 April 1973 whose earliest date to access their pension benefits will see a two-year delay.
There is an overall limit on the amount of an individual’s tax-relieved annual pension savings or accrual which includes employer contributions. This
is known as the annual allowance and the standard annual allowance remains £40,000 for 2022/23.
An individual’s unused annual allowance from the three previous tax years can be carried forward and added to the annual allowance.
National Insurance Contributions (NICs)
We will see a temporary 1.25% increase in both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23.
From April 2023 onwards, the NIC rates will decrease back to 2021/22 levels and will be replaced by a new 1.25% Health and Social Care Levy
The Primary Threshold and Lower Profits Limit (the point at which employees and the self-employed start paying National Insurance contributions (NICs)) will increase to bring them in line with the income tax personal allowance of £12,570.
This will mean working people will be able to earn £12,570 tax and National Insurance free, an increase of £2,690 in cash terms.
National Living Wage (NLW) and National Minimum Wage (NMW)
The National Living Wage is increasing by 6.6% for individuals aged 23 and over. The Government has announced increases in other NMW rates based on the recommendation of the Independent Low Pay Commission.
From 1 April 2022, the new hourly rates of NLW and NMW are:
- £9.50 for those 23 years old and over
- £9.18 for 21-22-year-olds
- £6.83 for 18-20-year-olds
- £4.81 for 16-17-year-olds
- £4.81 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.
Making Tax Digital
The Making Tax Digital (MTD) regime is based on businesses being required to maintain their accounting records in a specified digital format and
submit extracts from those records regularly to HMRC.
MTD for Income Tax
It had been expected that sole trader businesses and landlords with business income of more than £10,000 per annum would be required to enter the MTD regime for income tax purposes from 6 April 2023. However, HMRC recently announced that this will be deferred until 6 April 2024.
Early adoption of digital record keeping and voluntary submission of MTD for income tax data remains possible.
MTD for Corporation Tax
HMRC has previously announced that MTD for corporation tax will not be mandated before 2026.
Corporation tax rates
The main rate of corporation tax is currently 19%, and it will remain at that rate until 1 April 2023, when the rate will increase to 25% for companies with profits over £250,000.
The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less.
Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporate tax rate.
Most corporate and unincorporated businesses are able to utilise a £200,000 annual investment allowance (AIA) to claim 100% tax relief on their qualifying expenditure on plant and machinery.
The allowance was temporarily increased to £1 million for expenditure incurred on or after 1 January 2019 and was due to revert back to £200,000 from 1 January 2022, but will remain in place until 31 March 2023.
Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery will benefit from new first-year capital allowances.
Under this measure, a company is allowed to claim:
- a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
- the first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for a 6% special rate writing down allowances.
This relief is not available for unincorporated businesses.
First-year allowances for business cars
100% first-year allowances for zero-emission cars and zero-emission goods vehicles have been extended by four years from April 2021.
CO2 emission thresholds have been amended from April 2021. These determine the rate of capital allowances available through which the capital expenditure for business cars can be written down.
The thresholds have been reduced from 50g/km to 0g/km for the purpose of the first-year allowances for low CO2 emission cars and from 110g/km to 50g/km for the purpose of writing down allowances (WDAs) for business cars.
The reduction in thresholds will mean that only business cars acquired with CO2 emissions of 0g/km will be eligible for first-year allowances. Ultra-low emission vehicles which currently qualify for first-year allowances if 50g/km or less will no longer qualify. They will be eligible for WDAs at the main rate (18%). Cars with CO2 emissions exceeding 50g/km will be eligible for WDAs at the special rate (6%).
Residential Property Developer
A new tax will be applied from 1 April 2022 on company profits derived from UK residential property development. The tax will be charged at 4% on profits exceeding an annual allowance of £25 million. For companies that are part of a group, the £25 million allowance will be allocated by the group between its companies.
Research and Development (R&D) tax relief reform
Research and Development (R&D) tax reliefs for companies will be reformed to:
- support modern research methods by expanding qualifying expenditure to include data and cloud costs.
- more effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK.
- target abuse and improve compliance.
These changes will take effect from April 2023.
Capital gains tax (CGT) rates
There are changes to the current rates of CGT, which remain at 10%, to the extent that any income tax basic rate band is available and 20% thereafter. Higher rates of 18% and 28% apply for certain gains, mainly chargeable gains on residential properties except for any element that qualifies for Private Residence Relief.
Two specific types of disposal potentially qualify for a 10% rate up to a lifetime limit for each individual:
- Business Asset Disposal Relief (BADR) (formerly known as Entrepreneurs’ Relief). This is targeted at directors and employees of companies who own at least 5% of the ordinary share capital in the company, provided other minimum criteria are also met, and the owners of unincorporated businesses.
- Investors’ Relief. The main beneficiaries of this relief are external investors in unquoted trading companies who have newly-subscribed shares. The lifetime limit for BADR was reduced from £10 million to £1 million for BADR qualifying disposals made on or after 11 March 2020. Investors’ Relief continues to have a lifetime limit of £10 million.
The CGT annual exemption will be maintained at £12,300 for 2021/22 and up to and including 2025/26.
Inheritance tax (IHT) nil rate bands
The nil rate band has been frozen at £325,000 since 2009, and this will now continue up to 5 April 2026.
An additional nil rate band, called the ‘residence nil rate band’ (RNRB), which has been increased in stages and is now £175,000 for deaths, is also frozen at the current level until 5 April 2026.
A taper reduces the amount of the RNRB by £1 for every £2 if the ‘net’ value of the death estate is more than £2 million. Net value is after deducting permitted liabilities but before exemptions and reliefs. This taper will also be maintained at the current level.