National Insurance increase 

One of the biggest changes for 2022/23 will be the increase in National Insurance rates by 1.25%. This increase is the precursor to the introduction of the Health and Social Care Levy (H&SCL) on 6 April 2023. The 1.25% increase will apply to:

• Class 1 - both employees and employers – so adding 2.5% to the cost of employment
• Class 1A
• Class 1B
• Class 4 (although this is only relevant to self-employed individuals)

HMRC are asking employers to include disclosures explaining the increase separately on payslips, although this is voluntary.

From April 2023, the NIC rates will drop back to current levels and the extra 1.25% will be rebadged as the H&SCL. This will then also apply to individuals over pension age who are still working – although not to any actual pension income. At present, those over pension age are not required to pay any NIC on their earnings.

Tax rates and allowances

Although both National Insurance rates and thresholds will be increasing from April 2022, most other key tax rates and allowances have been frozen in 2022/23 for English, Welsh and Northern Irish taxpayers including:

• The personal allowance – which remains at £12,570.
• The basic rate threshold for income tax – which remains at £50,270.
• The higher rate threshold at which 45% tax rates apply - which remains at £150,000.
• The annual allowance and lifetime allowance for pensions will be unchanged at £40,000 and £1,073,100 respectively.

Scottish taxpayers will though see some changes to their calculation as the Scottish Government confirmed small adjustments to their system of five rate bands at the Scottish budget on 9 December 2021.

National Minimum Wage/National Living Wage

Following the recommendations of the Low Pay Commission (LPC), the Government will increase the National Living Wage (NLW) for individuals aged 23 and over from £8.91 to £9.50 an hour effective from 1 April 2022.

The Government has also accepted the LPC’s recommendations for the following increases in hourly National Minimum Wage (NMW) rates from April 2022:

• 21 to 22 year olds - from £8.36 to £9.18
• 18 to 20 year olds - from £6.56 to £6.83
• 16 to 17 year olds - from £4.62 to £4.81
• Apprentices - from £4.30 to £4.81
• Accommodation offset rate - from £8.36 to £8.70

End of temporary reliefs for homeworking and covid testing

A number of temporary reliefs introduced during the pandemic are currently expected to come to an end on 5 April 2022 unless the Treasury grants further extensions in the coming months. These are:

• Employer covid testing exemption
• Exemption for employer reimbursement of home office expenses
• Automatic relief for homeworking

Under the exemption for covid testing, the provision by an employer of a covid test, or the reimbursement of the cost incurred by an employee in obtaining a test, was not treated as a benefit in kind for the period from 6 April 2020 to 5 April 2022.

From 6 April 2022, unless the Treasury uses new powers granted in the latest Finance Bill to provide for national emergencies, employers paying for or reimbursing the costs of such tests will be creating a benefit in kind for their employee. To avoid tax consequences for the employee from this date, employers who continue to pay for or reimburse testing will either need to ensure that the costs meet the definition of a trivial benefit in kind, or are included within a PAYE settlement agreement with HMRC.

For the duration of the pandemic, reimbursements by employers for the acquisition of home office equipment by employees has been accepted as not taxable on the employee. This was a special concession as usually such reimbursements by the employer would be taxable. From 6 April 2022, the simplest approach for employers providing equipment to employees to avoid tax problems is for the employer to purchase the equipment. No benefit in kind will arise where the equipment is provided by the employer solely for use in the performance of the employee’s duties and where there is little or no private use.  

For 2020/21 and 2021/22, the usual rules on claiming tax relief for homeworking by employees were relaxed, with HMRC allowing an employee who had been required to work at home at some point during each year to claim tax relief on £6/week costs, even if they had not been required to work at home for the entire year. From 2022/23 the usual rules on obtaining tax relief on homeworking expenses will apply which means tax relief is not available where the employee has chosen to work at home.

Veterans

Although the special NIC relief for employers who take on armed service veterans came into effect from 6 April 2021, it was necessary during 2021/22 to calculate and pay NIC and then claim it back. From 6 April 2022, a new code letter ‘V’ will allow employers to benefit from the relief on Employers NIC upfront.