Last month saw the Chancellor run through the Spring Statement 2022. But what does it all mean for UK businesses?

Although this year’s Spring Statement will have more of an impact on individuals than organisations, there are still several changes that employers will need to be aware of.

The cost of living in the UK has skyrocketed over the last six months. Brexit, the ongoing fallout from COVID-19 and the war in Ukraine have all combined to put immense pressure on supply chains, and the cost of just about everything has drastically shot up, with inflation at a 30-year high of 7.4%.

However, the Spring Statement 2022 unveiled a new tax plan that’s set to impact National Insurance and income tax in an attempt to ease the crisis.

National Insurance contributions

As of April 2022, the rates of National Insurance contributions (NICs) payable by both employers and employees have increased by 1.25% in preparation for the Health and Social Care Levy coming into play in April 2023. From April next year, the levy will appear as a separate line on employees’ payslips.

To counteract this tax hike, the Spring Statement outlined that the primary threshold at which employees start paying Class 1 NICs will increase from £9,880 to £12,570 on 6 July 2022, aligning with the starting threshold for income tax. In essence, this means that employees will only have to pay NICs once their earnings exceed £1,048 per month (they’ll still receive the benefits but won’t have to pay NICs if they earn more than the lower earnings limit of £533 a month). As a result, workers could potentially save up to £330 annually.

For some workers, the changes to the primary threshold for NICs will cancel out the National Insurance surcharge. However, when you take into account the 30-year-high inflation rates (not to mention the record 54% energy price cap increase), many will be worse off this year.

Income tax

The basic tax rate for non-savings or non-dividend income is being reduced for taxpayers in the UK, dropping from 20% to 19% in April 2024.

This rate reduction will run alongside a four-year freeze for personal tax allowance and the basic rate limit. The personal allowance will increase from £12,500 to £12,570 for 2022/23 and the basic rate limit will rise from £37,500 to £37,700. By default, the higher rate threshold (i.e. the personal allowance added to the basic rate limit) will increase from £50,000 to £50,270.

These thresholds will be frozen from 6 April 2022 to 5 April 2026 rather than increasing annually in line with inflation. As a result, many people will end up paying more in income tax as average incomes grow — with some people being pushed into the higher rate.

Employment Allowance

If a business’ or charity’s Class 1 NICs were less than £100,000 in the previous tax year, they’re eligible for Employment Allowance. The Employment Allowance scheme enables eligible employers to reduce their National Insurance liability each year. It’s worth noting that the allowance can only be claimed against one PAYE scheme.

In the Spring Statement, the Chancellor announced that as of the 2022/23 tax year, employers can now claim up to £5,000 on the scheme — up from £4,000. As such, any companies using the Employment Allowance will benefit from a £1,000 annual tax cut.

The government has said that it expects 500,000 SMEs will benefit from this increase in the Employment Allowance, and 50,000 businesses will no longer have to pay NICs altogether.

Assessing the impact

The Spring Statement has thrown up a dozen questions for businesses, leaving many with crucial decisions to make. How do you navigate the impact on your employees? Will you need to raise your prices or rates to stay profitable? Perhaps you’ll have to raise staff salaries to boost morale and make sure you’re meeting your duty of care to ensure their wellbeing? For example, many companies openly announced they would be offering blanket pay rises to all employees in January in line with inflation.

Ultimately, employers will need to assess what’s going to work best within their business. Would a pay rise across the board result in passing costs onto clients? And how will increasing rates impact your business down the line?

To prepare for all of these changes, employers will also need to make sure their business’ payroll software is up to date and that all information is correct to ensure employees are paid the right amount and on time. July is the earliest date that payroll software developers and employers will be able to update their systems and implement changes.

Your partner for stress-free payroll

Working with a UK payroll provider like TopSource Worldwide could be the solution you need in the wake of the Spring Statement. We’re leading the UK payroll sector with offices across the country, bringing you decades of experience and expertise to ensure you remain compliant with any new payroll regulations. Our team keeps up with the latest payroll legislation so that you don’t have to!

You’ll also benefit from Portico: our sophisticated payroll and HR database that comes with a range of reporting and system options that we’ll adjust to suit you and your employees. Portico is a cloud-based portal that offers seamless HR data tracking and secure document archiving, providing access to all relevant payroll information for your UK employees.

The portal is a secure and flexible way to store and track your HR and payroll data in line with the GDPR whilst allowing your employees to easily view and update their personal details, access and print payslips, manage annual leave allowance and expense claims, plus much more.

Does your payroll department have everything lined up to address the changes? Stay one step ahead of the curve to guarantee your UK employees are paid correctly and on time, every time, with our UK payroll services. Get in touch to find out more.