24 March 2022

Tax year 2022/2023: everything you need to know about the upcoming legislative changes

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Louis Wellings

Louis Wellings

Louis Wellings is a content marketing executive at Ciphr.

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Ciphr news Payroll

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With the current tax year ending on 5 April 2022, the 2022/2023 tax year introduces many key pieces of legislation affecting millions of employers and employees across the UK. In preparation for the upcoming tax year end, we’ve prepared an extensive list of all the regulatory changes that you need to be aware of.

Please note that the below content is for information purposes and shouldn’t be taken as formal tax advice. For full information in any of these areas, please consult your tax advisor. 

Contents

PAYE changes for 22/23 

After some years of significant changes, personal income tax allowances have been frozen at £12,570 for the next four years until 2026. The chancellor announced in his spring statement on 23 March 2022 that, from July 2022, the point at which employees start paying will also be set to £12,570. These rates apply to England, Northern Ireland, and Wales. Wales is permitted through its devolved governance to change the percentages but, for the moment, they are the same.  

As these rates are fixed for the next four years, we have certainty for both the tax bandings and the personal allowances. This is good news for payroll teams, particularly when we see how many changes are being introduced to the national insurance (NI) system over the next couple of years. These rates have been frozen to help recoup some of the spending by the government over the last couple of years on furlough and Coronavirus grants. For other personal allowances, such as for married couples and blind persons, there are either no further changes or very minor ones. HMRC expects the gain to be around £8bn in revenue by freezing these allowances. 

Scottish PAYE 

Scottish income tax is determined by the residency. If your main place of residence is in Scotland, you are a Scottish taxpayer.  

For Scottish residents, personal allowances are the same as the rest of the UK – except for those earning over £125,140, who do not get a personal allowance. 

As you will see in the table below, intermediate rates means Scottish residents pay more than UK residents at this threshold. The upper earnings limit for national insurance is linked with the UK higher rate of income tax, which is currently set to a higher level than the Scottish government’s threshold. 

Band Taxable income Scottish tax rate
Personal allowance Up to £12,570 0%
Starter rate £12,571 to £14,667 19%
Basic rate £14,668 to £25,296 20%
Intermediate rate £25,297 to £43,662 21%
Higher rate £43,663 to £150,000 41%
Top rate over £150,000 46%

Statutory rate changes and SSP 

The Coronavirus Statutory Sick Pay (SSP) rebate scheme repaid employers the SSP paid to current or former employees. Employers could only claim for employees who were off work on or after 21 December 2021. The SSP rebate scheme closed for coronavirus-related absences on 17 March 2022.  

Employers had up to and including 24 March 2022 to submit any final claims and amend claims they’d already submitted. 

Student loans 

Below you will find the latest changes to the bandings for employees repaying their student loans through payroll. 

2021/2022 rate 2022/2023 rate
Employee earnings threshold for student loan plan 1 £19,895 per year £20,195 per year
Employee earnings threshold for student loan plan 2 £27,295 per year £27,295 per year
Employee earnings threshold for student loan plan 4 £25,000 per year £25,375 per year
Student loan deductions 9% 9%
Employee earnings threshold for postgraduate loan £21,000 per year £21,000 per year
Postgraduate loan deductions 6% 6%

National minimum wage changes  

Below you will find the upcoming changes to the national minimum wage (NMW). The gap is closing between 21 and 23-year-olds – likely to reduce the impact on employers when the rates are eventually brought into line.  

  Rate from April 22 Current rate (April 2021 to March 2022) Increase
National living wage £9.50 £8.91 6.6%
21-22 year old rate £9.18 £8.36 9.8%
18-20 year old rate £6.83 £6.56 4.1%
16-17 year old rate £4.81 £4.62 4.1%
Apprentice rate £4.81 £4.30 11.9%
Accommodation offset £8.70 £8.36 4.1%

When the minimum wage rates change, the increase applies to the first pay reference period starting on or after the date of any change. For example, if the annual minimum wage increase takes effect on 1 April and a worker’s pay reference period also starts on 1 April, the increase applies with immediate effect. However, if the worker’s pay reference period is in arrears, the rate will apply to the first full pay day at the start of the new pay reference period.​ 

The pay and deductions allowable for the minimum wage calculation are extremely complex, particularly where you may have salary sacrifice benefits in place. While your payroll system may support these calculations, please do ensure you check this regularly.  

​While the national minimum wage is mandatory, the real living wage is voluntary and applies to workers aged 18 years and over. With so much focus on the rising cost of living, the real living wage rates are higher because they are independently calculated based on what people need to get by.  

CJRS record keeping 

For the Coronavirus Job Retention Scheme (CJRS), records must include details of hours worked, furloughed hours and any documentation such as letters to the employees.  

​HMRC have already made their first arrests relating to furlough fraud. As part of this, HMRC seized all computers and digital devices. They also froze the bank accounts relating to the individuals and the business.​ 

​Some of the fraud reasons include: 

  • A company furloughed staff but asks them to continue to work or volunteer unpaid​ 
  • The company furloughed staff without telling them, and then workers only find out when paid. 
  • A company claimed furlough money for a ‘ghost’ employee. This may be someone they dismissed or ‘recruited’ in order to make false claim 

What is the health and social care levy? 

From April, the health and social care levy will come into action, raising almost £36 billion over the next three years for health and social care services, which the government ensures will be used as efficiently as possible as adult social care is reformed and the Coronavirus backlog is tackled. 

It might be called a ‘levy’ but it is just an additional tax on employers and employees, which will be collected via national insurance contributions in 2022/23, and as a separate deduction on payslips from April 2023.​ This means that, from 6 April 2022, all rates of national insurance for both employees and employers will increase by 1.25 percentage points.

The levy applies to: 

  • Class 1 that are above the primary and secondary thresholds 
  • Class 1A and Class 1B for employers 
  • Class 4 for the self-employed 

As with any significant change that impacts an employee’s pay, it is of great importance that employee communications and information are sent about these changes. If your HR system has a dashboard or landing page, you can always make use of this or send communications to inform workers and reduce the number of payroll queries in period one for April. You should also reference the levy with messaging on your employees’ payslips.  

Veteran’s national insurance relief 

Employers will be able to claim national insurance contributions relief on the earnings of qualifying veterans. A person qualifies as a veteran if they have served at least one day in the regular armed forces. This includes anyone who has completed at least one day of basic training. 

The relief is available to all employers of veterans regardless of when the veteran left the regular armed forces, providing they have not previously been employed in a civilian capacity. 

Employers can claim relief even if the employment starts before 6 April 2021, but will only be able to claim for the remaining qualifying period. 

This 12-month period does not change if the employment finishes. This means that current and future employers can also claim this relief if they employ a veteran within their qualifying period. 

Hiring teams can obtain a variety of different proof of status for the veteran: 

  • Veteran’s identification card (which marks their time in the armed forces) 
  • Letter of employment or contract with HM Armed Forces 
  • Veteran’s P45 from leaving HM Armed Forces 
  • Discharge papers from HM Armed Forces 
  • The employment contract of an individual’s previous employment (in order to determine the start date) 

Freeport national insurance relief 

To make sure the relief is effectively targeted at supporting economic activity in Freeport areas, and to limit the risks of abuse, the measure includes a condition that requires employees to spend at least 60% of their working time in the Freeport tax site.  

The use and effectiveness of the relief will be monitored and reviewed to allow a decision on whether to continue the relief beyond its earliest end date of 5 April 2026. 

Payroll news

Here are four other updates that your payroll teams may need to be on the lookout for.

Redundancy pay cap 

The redundancy pay cap is due to increase to £571 from £544 from 6 April 2022. 

Pensions (Extension of Automatic Enrolment) Bill 

The bill to extend pensions automatic enrolment to all jobholders aged 18 or over, which would also remove the lower qualifying earnings threshold for automatic enrolment, has had a second reading in the House of Commons, but there are no publications as yet for this reading online. Both these changes will have a significant impact both to employees and employers. Currently the qualifying earnings sit at £10,000 per year, which has not changed since it was introduced in 2014. The removal of this threshold would remove the exclusion of lower-paid staff (particularly those who might be working multiple part-time jobs) from automatic pension membership. 

Queen’s Platinum Jubilee this year 

There will be an extra bank holiday on Friday 3 June 2022 to celebrate the Queen’s Platinum Jubilee. The usual late May bank holiday has been moved from Monday 30 May to Thursday 2 June 2022 to create a four-day weekend for those who usually working Monday to Friday.  

Employment bill 

A new single enforcement body will be created to enforce breaches in relation to national minimum wage, modern slavery (including modern slavery statements), employment agencies, statutory sick pay, and holiday pay for vulnerable workers. It will have new powers to tackle non-compliance, including civil penalties of up to £20,000 per worker for breaches under the Gangmasters Licensing and Employment Agency Standards regimes. A ​second reading for this bill is scheduled to take place on Friday 6 May 2022. 

​The government announced in September 2021 that the new legislation, which will be supported by a code of practice on fair and transparent distribution of gratuities, will require all employers to pass on tips without any deductions. It also includes the new neonatal care leave. 

Ethnicity pay gap reporting

Despite the Houses of Parliament debates in Autumn 2021 (following a petition with over 130,000 signatures), the government has yet to publish its response.

Choosing the right payroll software for the new tax year

Given that each year new policies and procedures are set by the HMRC place in preparation for tax year end, it’s essential that employers stay on top of everything they need to do to accurately pay their employees. 

Here at Ciphr, we have a dedicated team of qualified payroll professionals and legal experts, who are always on hand to assist any queries about tax year end. If you’re interested to hear more about our services, book a demo today to find out how we can help you pay your people more quickly, simply and accurately.