The government says all must contribute

by | Nov 21, 2022 | Commentary and opinion, Payroll, Tax

PAYE Income Tax and National Insurance contributions are amongst the most significant cost for employers. The UK’s payroll taxes are also the government’s biggest receipt; between April 2022 and September 2022 these amounted to £190.4 billion of the total £368.9 billion received, proving just how important the PAYE and National Insurance take is to country and, of course, to the workforce. After all, employers would not be able to carry out their business without their staff and many workers appreciate the convenience of having their taxes dealt with through payroll.

The Autumn Statement brought in several changes in the world of payroll.

Additional rate tax threshold reduced

The current annual threshold of £150,000 over which income is subject to 45% tax is being reduced to £125,140. For those earning £150,000 per annum, this is an increase in their annual tax bill of £1,243. This new threshold of £125,140 is the earnings level where all of the personal allowance (PA) is lost, the PA being reduced by 50p for every £1 of adjusted net income over £100,000 until it is gone at £125,140.

Accelerating earnings into the tax year ended 5 April 2023 could be considered, depending on the facts and contractual circumstances.  For example, bonus payments that would otherwise be payable in 2023/24 might be paid in 2022/23, before the bandings change.

Other allowances and bandings frozen, until April 2028 in some cases.

The personal allowance of £12,570, below which no tax is payable, and the higher rate threshold at which tax becomes payable at 40% will remain at £50,270 and both will be frozen unto April 2028. This will result in more people falling into higher rate tax bands as earnings increase.

Just as there have been four Chancellors and three fiscal statements this year, the National Insurance rates and thresholds have been in a state of flux as well. They have now settled at:

  • A primary threshold in line with the PA, such that employees do not pay PAYE tax or National Insurance until their earnings reach £12,570 per annum,
  • The employee and employer rates are the rates we saw before April 2022, being 12% for employees up to the primary threshold and 13.8% for employers up to the secondary threshold of £9,100. These thresholds will now be frozen until April 2028.

The government estimates that 40% of employers do not pay any Class 1 National Insurance because they are eligible to claim the Employment Allowance. This will also be frozen at £5,000 per year, meaning that these employers will not be affected by the freezing of the secondary threshold.

 National Living Wage and National Minimum Wage increases

The NLW rate for those aged 23 years and over will increase by 9.7% from £9.50 to £10.42. This means that a full-time employee earning the minimum wage will be earning c£1,600 more per annum from 1 April 2023.

There will be a similar increase for the NMW for the other age groups as recommended by the Low Pay Commission.

 

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