Further to the Chancellor’s statement on Friday 23 September, some important changes impacting on payroll need to be noted by employers.
National Insurance InCrease Reserved from 6TH November 2022
The 1.25 percentage point increase in National Insurance which was brought in on 6th April 2022 to fund NHS, Health and Social Care will be reversed, effective from 6th November 2022. The proposed ‘Health and Social Care Levy’ that would have started in April 2023 will no longer go ahead. The NIC changes will only apply from 6th November, payments made in relation to earnings before that date will remain at the increased rate and no refunds will be made. We are awaiting updates from our software supplier – in the event that the changes cannot be made in time for November payroll run rates will be adjusted and backdated in December payroll.
Here is a great informative article by Deloitte on this topic – TaxScape | Deloitte | National Insurance increase reversed
Class 1A and Directors
Where NI Calculations are performed annually there will be blended rates, proportionally splitting them across the year.
For Class 1A NIC the blended rate will be 14.53% for the year.
For Directors each band has a new percentage
2021 – 2022 2022 – 2023 (as of this announcement)
Changes from the 6TH April 2023 – Changes to Income Tax
The Additional Rate of tax – currently 45% will be abolished and the Basic Rate of income tax will reduce from 20% to 19%
Once the additional rate of tax is removed, there will no longer be a rate of tax of 45% placed on annual income above £150,000. Therefore, all annual income above £50,270 will be taxed at the higher rate of income tax (40%).
Even though the basic rate of tax is reducing to 19% from April 2023, there will be a four-year transition period for Gift Aid relief, to maintain the income tax basic rate relief at 20%, until April 2027. There will also be a one-year transitional period for relief at source pension schemes to allow them to continue to claim tax relief at 20%.
The changes apply to:
• non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland
• the savings basic rate which applies to savings income for taxpayers across the UK
• the default basic rate, which applies to non-savings and non-dividend income of any taxpayer not subject to either the main rates or the Scottish rates of income tax.
It’s of note that the rates and bands for Scottish income taxpayers for non-savings, non-dividend income are set by the Scottish government, so the income tax rate cuts announced do not apply to Scottish taxpayers. Additionally, the Welsh rates of income tax for non-savings, non-dividend income for Welsh taxpayers are set by the Welsh government, on top of reduced UK rates. The income tax rate cuts apply to Welsh taxpayers, but don’t provide additional funding for the Welsh government
To view more information on this topic, view the .GOV page here – Income Tax Additional Rate Threshold from 6 April 2023 – GOV.UK (www.gov.uk)
2017 and 2021 IR35 Reforms to be repealed
The 2017 and 2021 reforms to the Off-Payroll working rules will be repealed from 6th April 2023.
From this date workers across the UK providing services via an intermediary will once again be responsible for determining their employment status, and for paying the appropriate amount of tax and NICs. This does not mean it is the end of the IR35 with the rules still in place and HMRC keen to make clear they will still be still enforced. It is just that contractors will once again be responsible for compliance and payment of tax.
HMRC have confirmed that for services provided before 6th April 2023 the current rules will apply even if payment for those services is made on or after this date.
To learn more about this, visit Financial Times Adviser article that goes into more detail – Mini-Budget: IR35 reforms will be repealed from April – FTAdviser.com
The government have confirmed that these zones will bring tax incentives, simplify planning restrictions and drive growth. While similar in concept to freeport tax sites, they are distinct in operation and function.
Specified sites in England will receive time-limited tax incentives over the next ten years. In Scotland, Wales and Northern Ireland, the investment zones will be delivered with devolved administrations and local partners.
Businesses within the zones will receive 100% relief on business rates for newly occupied premises and some existing business will also qualify if they expand within the zone. For 25 years, the local council will receive 100% of business rate growth above an agreed threshold.
Capital allowance and structures and buildings allowances are to be enhanced for businesses within the zones. As well as a full stamp duty land tax relief for land and property bought for commercial use or development or new residential developments.
Importantly for payroll professionals, new employees who work in the tax sites will be eligible for zerorate employer NI contributions up to £50,270. Employees need to work at least 60% of their time in the site. Employer NI contributions over £50,270, will be charged at the usual rate.
Investment zones are currently not included in the costings of the Growth Plan as insufficient data about their implementation is available.
To learn more about Investment Zones and Freeport Tax Sites, click the Deloitte article here – Freeports and Investment Zones: Where did they end up, and where are we going? | TaxScape | Deloitte | Deloitte
Real Living Wage
The Real Living Wage Foundation has announced the new hourly rates for the Real Living Wage.
Across the UK the rate will be £10.90, a £1.00 rise, and £11.95 in London, an uplift of 90p
This increase of 10.1% is the largest in the foundation’s history and marks the hourly rate at £1.40 above the National Living Wage of 9.50 for those aged 23 and over.
The announcement of these rates was due in November but was brought forward in response to the rapidly increasing cost-of-living. The foundation calculates the rate from the real cost-of-living facing lower earners across the UK.
The voluntary living wage rates, used by over 11,000 employers, are to be implemented as soon as possible, but by 14 May 2023 at the latest. This should affect over 390,000 living wage workers