What You Need to Know About Tax for 2022/23 | moneyfacts.co.uk

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Michael Brown

Content Writer
Published: 06/04/2022

While income tax bands stay the same, National Insurance thresholds have been increased.

The new tax year has brought new changes to deal with the rising cost of living. Notably, the National Insurance contribution threshold has been raised.

To help consumers and businesses understand the key changes and rules in place, we’ve highlighted the main tax laws you should know.

But, if you would like a more detailed description of the tax allowances for this year, including business taxes, sign up for our free tax guide.

National Insurance contributions

In his Spring Statement, Chancellor Rishi Sunak announced that the National Insurance threshold will be raised. While this will take place in July, the National Insurance rate rise of 1.25% across the board will still go ahead as planned and will come into effect this month.

How is National Insurance calculated?

Most commonly, those earning between £190 a week (£9,880 a year) and £967 a week (£50,270) will now be charged 13.25% in National Insurance contributions later in April. As stated, in July this will change to £12,500 per year, rather than the current £9,880 threshold.

This will reduce the amount of people who are required to pay National Insurance.

Earnings over £967 per week (£50,270) will be taxed at 3.25% a year compared to the 2% imposed last tax year.

National Insurance categories explained

National Insurance rates are split according to your category and letter. Categories range from Class 1 to 4 and are sorted via your employment status. Class 1 is reserved for employers, Class 2 for the self-employed for profits between £6,725 and £11,908 a year, Class 3 for those making voluntary contributions to make up a shortfall, and Class 4 for the self-employed with profits over £9,880 a year (rising to £12,500 in July – annualised to £11,908).

Each individual employee is allocated a separate letter category. Most workers will fall into the letter A, or F if they work in a freeport, but the other letters can be found below:

Category letter (*)

Employee group

B (I)

Married women and widows entitled to pay reduced National Insurance

C (S)

Employees over the State Pension age

H

Apprentices under 25

J (L)

Employees who can defer National Insurance because they’re already paying it in another job

M

Employees under 21

V

Employees who are working in their first job since leaving the armed forces (veterans)

Z

Employees under 21 who can defer National Insurance because they’re already paying it in another job

(*) Letters in brackets apply to freeport workers in the same employee group

Income tax

After your National Insurance contributions have been determined, it is key to understand your income tax.

This year, personal allowance limits have remained largely the same. Each person can earn £12,570 without being taxed, while the personal allowance limit has been held at £100,000.

This means if you earn over £100,000 a year, your personal allowance is reduced by £1 for every £2 earned over the £100,000 limit.

What has changed is the married couple’s allowance, which has been increased by £290 to £9,415 and the blind person’s allowance has increased by £80 to £2,600.

Once your personal allowance has been determined, the next step is to determine your income tax bracket. The income tax bracket rates and categories stay unchanged from last year.

The first band is for those who earn up to £37,700 over their personal allowance, or £50,570 a year. The rate for this band, the basic tax rate, will stay at 20%. Those earning between £50,570 and £150,000 will be placed in the higher tax band and can expect their rate to be 40%. Earners over £150,000 will be taxed at 45%.

It is key to note that some of these bands and rates change if you reside in Scotland. These specific details can be found in the Moneyfacts Taxfacts guide.

The minimum wage

As laid out last year, the minimum wage will be increased across the board, with the national living minimum wage now at £9.50 per hour, a 6.6% increase from the prior tax year.

It is important to note that the minimum wage does vary according to your age. Those aged between 21 and 22 years-of-age will receive £9.18 an hour, a 9.8% increase from last year and those aged between 18 and 20 years-of-age will earn £6.83, a 4.1% increase from last year.

The minimum apprentice rate now matches the minimum wage for those aged between 16 and 17 years-of-age at £4.81 per hour.

Savings and ISAs

Your personal savings allowance will depend on which income tax band you fall under. Those paying a basic tax rate (earning up to £50,570 a year) will have a personal savings allowance of £1,000. If you earn anything between this figure and £150,000 this will be reduced to £500. Additional rate tax-payers, those who earn over £150,000 a year, do not have a personal savings allowance.

Any interest you earn over your personal savings allowance will be taxed according to your income tax band.

However, if your total income, which includes any money you make from savings, is under £17,570 a year then savers will be taxed at 0% on up to £5,000 of savings interest.

On the other hand, the tax-free ISA limit and Junior ISA limit have remained at £20,000 and £9,000 respectively.

Pensions

As published in November, the basic state pension will increase to £141.85 per week and the full rate of new State Pension will increase to £185.15. This is up from the basic State Pension amount of £137.60 and the full State Pension amount of £179.60 received last tax year.

Tax on pension contributions has remained the same as last year, these details can also be found in our taxfacts guide.

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