2021 Autumn Budget: Income Tax, Employment and Share Schemes
October 27, 2021
The Budget delivered on 27 October was relatively light on tax changes – and especially so in respect of income tax, employment tax and shares schemes.
Personal and Employer Tax Rates
As previously announced the basic rate, higher rate and additional rate thresholds for income tax will remain unchanged next year (as will the rates themselves), with no inflationary increases.
Also as previously announced, Class 1 and Class 4 National Insurance Contribution (“NIC”) rates will increase by 1.25% from 6 April 2022 (prior to the introduction of a new Health and Social Care Levy from 6 April 2024), as will dividend tax rates.
The personal allowance remains unchanged for 2022-2023 at £12,570.
The personal allowance is reduced for individuals with income above £100,000 – it is reduced by £1 for every £2 of income above £100,000. This means that the personal allowance is £nil for individuals with income of £125,140 or more and that income between £100,000 and £125,140 is taxed at an effective income tax rate of 60%.
Income Tax Rates – England, Wales and Northern Ireland
The main income tax rates and thresholds remain unchanged for 2022-23:
|DESCRIPTION||INCOME (AFTER DEDUCTING PERSONAL ALLOWANCE)||RATE|
|Basic rate||£0 - £37,700||20%|
|Higher rate||£37,700 - £150,000||40%|
|Additional rate||Over £150,000||45%|
The dividend allowance remains unchanged at £2,000 and the dividend tax rates will increase by 1.25% from 6 April 2023:
|Ordinary rate (payable within the basic rate band)||8.75%|
|Upper rate (payable within the higher rate band)||33.75%|
|Additional rate (payable within the additional rate band)||39.35%|
Class 1 NIC
As previously announced, all Class 1 (and Class 4) NIC rates will increase by 1.25% from 6 April 2022:
|DESCRIPTION||EMPLOYER RATE||EMPLOYEE RATE|
|Income below the secondary threshold (£175 per week)||0%||0%|
|Income between the secondary threshold (£175 per week) and the primary threshold (£190 per week)||15.05%||0%|
|Income between the primary threshold (£190 per week) and the upper earnings limit (£967 per week)||15.05%||13.25%|
|Income above the upper earnings limit (£967 per week)||15.05%||3.25%|
The employer’s rate of 15.05% will also apply for Class 1A contributions (payable on non-cash benefits in kind provided to employees) and Class 1B contributions (payable on items included in a PAYE settlement agreement). Where the apprenticeship levy of 0.5% applies, the total employer’s rate is effectively 15.55%.
As the cost of living increases, the fact that tax rate bands have not been increased for inflation will result in an effective tax increase – potentially with many employees feeling somewhat poorer, even if it is not immediately obvious why.
In addition, the increases to the cost of both employee and employer NIC could hit both take home pay (due to the additional tax on earnings) and employers’ bottom lines (as it will be more expensive to pay employees and provide benefits).
Although the Chancellor announced in the Budget that he hopes to return to lower taxes by the end of this parliament, history implies that increases to NIC are often a convenient, and somewhat less obvious, way to increase the tax take and are very seldomly reversed.
Basis Period Reform
A consultation that ran over summer of this year looked at potential simplification for the basis period rules (which covers sole traders, partners and members of LLPs). The Government confirmed that the draft legislation for simplification that was published in July 2021 will be revised with any new rules effective from 6 April 2024.
The current basis period rules can prove a real headache for self-employed individuals (and their tax advisors) – they are often complicated and can result in unexpected cashflow difficulties. True simplification is likely to be widely welcomed, but the details will be key.
Minimum Pension Age
Currently individuals must be at least 55 to make authorised withdrawals from their pension. From 6 April 2028 this will be increased to 57.
In recent memory there have been a number of changes which make saving into registered pensions less appealing, especially for higher earners (such as the reductions in the annual and lifetime allowances) and an increase in the minimum pension age, whilst small, may further discourage individuals from using a registered pension and to search for alternative investments.
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October 27, 2021
Managing Director, Head of EMEA Employment Tax & Reward