The Chancellor, Rishi Sunak, delivered the Autumn Budget and Spending Review on the 27th of October. Setting out his plans for the year ahead, he pledged to “build back better” and pave the way for an “economy of higher wages, higher skills, and rising productivity”. Continue reading as we summarise the key announcements in the Budget that affects contractors in the UK.
Health and Social Care Levy and National Insurance Contributions
The government has confirmed that National Insurance Contributions (NICs) will increase by 1.25% from April 2022 as part of a new health and social care levy. The levy will apply to all working-age employees and self-employed workers to increase the National Health Service funds.
From April 2023, once HMRC’s systems have been updated, the levy will be separated from NICs and apply to the earnings of individuals working above state pension age. From this point, NICs will return to their 2021/22 levels and the 1.25% health and social care levy will be introduced, as outlined in the table below.
|NIC||2021/22 Current NIC threshold
Main rate/higher rate
|2021/22 Current NIC rate
Main rate/higher rate
|2022/23 NIC rates
Main rate/higher rate
|2023/24 NIC rates and H&SC Levy
Main rate/higher rate
|Employees (Class 1)||£9,568||12%/2%||13.25%/3.25%||12%/2% and 1.25% (H&SC)|
|Employers (Class 2)||£8,840||13.8%||15.05%||13.8% and 1.25% (H&SC)|
|Self-employed (Class 4)||£9,568||9%/2%||10.25%/3.25%||9%/2% and 1.25% (H&SC)|
*For 2021/22, the main rate is for earnings between £9,568 and £50,270. The higher rate applies to earnings above £50,270.
Dividend Tax Rates
Similarly to the NIC increase, the income rates to be paid on dividend income will also increase by 1.25%. The tax-free allowance of £2,000 will remain. From April 2022, the dividend tax rates will be as follows:
- Basic rate taxpayer – 8.75%
- Higher rate taxpayer – 33.75%
- Additional rate taxpayer – 39.35%
The dividend trust rate will increase to 39.35% to align with the increase in the additional dividend rate.
Increase to the normal minimum pension age
Currently, the earliest individuals can access their pension savings without incurring a charge is 55 years old. The government has confirmed that from April 2028, individuals born after the 5th of April 1973 will see a two-year delay to the earliest date they can access their pensions as it will rise to 57.
During last year’s Budget, the government announced that it would conduct a review of the business rates system. The final report was published on the 27th of October 2021, and it set out the government’s commitments by:
- Conducting business rates revaluations every three years, starting in 2023.
- Cutting the burden of business rates for all businesses by freezing the multiplier for 2022-23.
- Introducing a new temporary business rates relief for eligible leisure, retail and hospitality properties for 2022/23. Eligible properties will receive at least 50% off their business rates bill, up to a maximum of £110,000 per business.
- Introducing new measures to support green investment and the decarbonisation of non-domestic buildings.
Making Tax Digital for Income Tax Self-Assessment
Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) is being introduced from the 6th of April 2024 for self-employed individuals and landlords with an annual business or property income above £10,000. MTD for ITSA was due to be introduced from April 2023, but a written ministerial statement confirmed that it would be delayed for one year.
Following the deferral for self-employed individuals and landlords, general partnerships will not be required to comply with MTD for ITSA until the 6th of April 2025. Other types of partnerships (such as limited liability partnerships) will be required to join at a later date.
Annual Investment Allowance
The temporary Annual Investment Allowance (AIA) of £1 million will be extended to the 31st of March 2023. The AIA applies to qualifying expenditure on plant and machinery incurred from the 1st of January 2022 to the 31st of March 2023.
In the Spring Budget 2021, Chancellor Rishi Sunak announced changes to the Corporation Tax rates in the UK. The main rate of Corporation Tax is currently 19%, and this will remain in place for the fiscal year from the 1st of April 2022. From the 1st of April 2023, Corporation Tax will increase from 19% to 25% when a company’s profits exceed £250,000. The 19% will become a small profits rate payable by companies with £50,000 or fewer profits. A tapered increase will be applied up to the main rate of 25% when a company’s profit reaches £250,000.
The Recovery Loan Scheme
The government announced that they are extending the Recovery Loan Scheme until the 30th of June 2022. The Recovery Loan Scheme supports access to finance for UK businesses as they grow and recover from the COVID-19 pandemic. From the 1st of January 2022, the following changes will come into force:
- The scheme will only be open to small and medium-sized enterprises
- The maximum amount of finance available will be £2 million per business
- The guarantee coverage that the government will provide to lenders will be reduced to 70%
Capital Gains Tax
There have been no changes announced to the current rates of Capital Gains Tax (CGT). The CGT annual exemption will be maintained at £12,300 until 2026. Basic rate taxpayers will continue to pay 10% on Capital Gains above this amount, and higher rate taxpayers will pay 20%. Higher rates of CGT apply when disposing of residential property. Basic rate taxpayers will pay 18% on residential property, and higher rate taxpayers will pay 28%.
Previously, when you disposed of a residential property, you had to report and pay any CGT due within a 30-day window after the completion date. The deadline has now increased to 60 days for residents and non-UK residents when disposing of UK land and property. When UK residents dispose of a mixed-use property, the 60-day payment window will also apply to the residential portion of the property gain. For more information about reporting and paying CGT on UK property, please visit the government’s website.
Improving the UK’s digital capabilities
There is good news for contractors and freelancers who work with technology as the government has set aside packages to improve digital elements of society. The government has pledged more than £5 billion to the NHS, in addition to the £36 billion reform package previously announced. The money will be used in part to improve the NHS’s digital capabilities.
The government has also confirmed that there’s more than £75 million going to 110 regional museums and libraries to improve their digital facilities and buildings. The government is also setting aside £628 million to “modernise and digitise the border” with planned improvements to include a US-style Electronic Travel Authorisation for tourists visiting the UK.
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