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Personal Taxation

Personal Taxation

National Insurance Contributions (NICs) Threshold Raised

The government has decided to proceed with the upcoming 1.25% increase in NICs payable by employees, employers and the self-employed, as planned from April 2022, to provide additional funds for health and social care. However, Chancellor Rishi Sunak announced plans to raise the national insurance threshold by £2,690.

The annual level at which employees and the self-employed start to pay NICs was due to increase from £9,568 to £9,880 from 6 April 2022. This increase will go ahead but be further uplifted to £12,570 from 6 July 2022, effectively aligning the point at which an individual starts to pay NICs with the £12,570 income tax personal allowance.

‘The current threshold for national insurance is £9,500 and I will increase this by £3,000 – equalising the NICs and income tax thresholds from July 2022. This is a £6bn tax cut for 30m people, and is the largest increase in the basic rate threshold ever. It is a tax cut that rewards work.’ Sunak said yesterday

In the tax year to 5 April 2023, this is NIC cut is worth £267 for most employees and £207 for most self-employed individuals.

Crucially, this will more than negate the impact of the 1.25 percentage point NIC increase for most workers with employment earnings of less than £34,000, providing them with a small contribution to the increased cost of living.

The starting NIC threshold for the self-employed and company directors is computed on an annual basis and so will be set at a pro-rata sum of £11,908 for the whole of the tax year to 5 April 2023, before increasing to £12,570 in the tax year to 5 April 2024.

Class 2 NIC liabilities of the self-employed

For the self-employed, some individuals will find that they no longer need to pay Class 2 NICs from April 2022. The small profits threshold will be set at £6,725 as planned but the requirement to pay Class 2 NIC will only apply to those with self-employed profits over £11,908.

This will benefit approximately 500,000 self-employed individuals by saving them £165 a year.

From 6 April 2023, Class 2 NIC will only be payable by those with profits over £12,570.

5p per litre cut in Fuel Duty

Fuel duty has been cut by 5p per litre for 12 months from 6pm on 23 March 2022.
The Chancellor claimed that this move is the ‘biggest cut ever’ on fuel duty rates and means a one-car family will now save on average £100 a year and the average van driver £200 a year.

Government commits to a 1% Income Tax cut but not yet

The Chancellor has committed to reduce the basic rate of income tax from 20% to 19%, but not until 6 April 2024.

It is estimated that this will save 30 million individuals an average of £175 per year.

In the Spring Statement, the Chancellor said that this is the first cut in the basic rate of income tax since 2008-09.

However, many will see the cutting of one penny from the basic rate of income tax as a tactical and political move by the Chancellor. As the 1st pay-packet that will reflect this cut, will drop into workers pockets at the end of April 2024, just 1 month before people go to vote in the next planned general election.

VAT removed from Green Technologies

To help households improve energy efficiency and keep heating bills down, VAT on Energy Saving Materials (ESMs) installed in residential accommodation will be reduced from 5% to 0% from this April in Great Britain. The 0% rate will apply until 31 March 2027.

Green technology, including solar panels and heat pumps, will be exempt from business rates in England from April 2022, a year earlier than originally planned.

A 100% relief for eligible low-carbon heat networks which have their own rates bill will also be available.

Typically, a family having roof top solar panels will see their installation costs cut by at least £1000, and will then save £300 annually on their energy bills.

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