Spring Statement 2022: Employment tax updates

The Spring Statement was reasonably light on employment tax changes, with the Chancellor opting to focus on more economy boosting activities. Here are the key changes that employers should be thinking about.

Class 1 National Insurance Contributions (NICs) 

In the Spring Statement today, the Chancellor has announced that the lower limit for NICs will be raised by £3,000.

The limit before Class 1 NICs are payable will be £12,570 (aligned with the standard personal allowance) but this will not take effect until July 2022.

This will represent a saving of around £330 per annum for many employees.

Employment Allowance

The Employment allowance (for employers remitting less than £100,000 of NICs p.a.) will increase to £5,000 for the tax year 2022/23.

Health and Social Care Levy

The new Health and Social Care Levy will come in to force to pay for reforms to the care sector and NHS funding in England.

The levy will apply to earnings from 6 April 2022, although will operate slightly differently in the tax year 2022/23 compared to future tax years.

From 6 April 2022, the levy will be seen as an increase of 1.25% on the rates of:

• Class 1 Primary (employee) and Secondary (employer) National Insurance Contributions on earnings
• Class 1A and Class 1B Contributions paid by employers on benefits provided to employees
• Class 4 National Insurance Contributions paid by the self-employed on profits.

In 2022/23, this will operate as a simple increase of the National Insurance Contributions (NIC) rates, so only those liable to pay NIC will be subject to the levy.

From 2023/24 onwards (once HMRC has developed new systems) the levy will operate as a separate payment to National Insurance Contributions, and it will also apply to those above the State Pension age, which is currently not the case for Class 1 Primary and Class 4 NIC.

Existing reliefs for Class 1 Secondary NIC will also apply to the new levy for employers of apprentices under the age of 25, all employees under the age of 21, veterans, and new employees in freeports (from April 2022). The levy deduction will appear separately on employee payslips.

National Living Wage

The National Living Wage will rise on 6 April 2022, from £8.91 to £9.50.

The Low Pay Commission recommended to the government the 6.6% rise for those aged 23 and over. This represents a rise of over £1,000 a year for a full-time worker.

In addition, the National Minimum Wage for younger workers rises as follows:

• aged 21 to 22 £8.36 to £9.18
• aged 18 to 20 £6.56 to £6.83
• aged under 18 £4.62 to £4.81
• apprentice rate £4.30 to £4.81.

The above increases will benefit over two million lower paid workers.

Company Car Drivers

As has been widely reported, the cost of fuel has risen significantly in recent weeks.

HMRC published its quarterly Advisory Fuel Rates (AFRs) on 1 March 2022, and unfortunately, the cost of fuel used to calculate the rates, was way off the reality of forecourt prices.

In the Spring Statement today, the Chancellor announced a 5 pence reduction in fuel duty.

That said, on the basis that these rates are ‘advisory’, HMRC permits an employer to apply a higher rate as long as they retain evidence of higher fuel costs and/or differing fuel consumption figures for their fleets.

Evidence should be preserved for future reference, and of course, fuel costs should be actively monitored to reflect future changes.