Pensions lifetime allowance abolished & annual allowance up to £60k
Keith Witchell
In last month’s Budget, Jeremy Hunt announced the end of the lifetime allowance for pensions, plus an increase in the annual allowance for pension contributions to £60,000, from this month.
In a welcome announcement by the Chancellor in his Spring Budget, the current lifetime allowance of £1,073,100 for pension savings will be abolished completed in April 2024. In the meantime, the lifetime allowance charge will be removed from this month, effectively making the lifetime allowance null and void, while the legislation is updated.
This means that business owners and high earners are encouraged to continue to working for longer, while able to continue making pension contributions.
However, the 25% tax-free lump sum that you can withdraw from your pension has now been capped at £268,275, which equates to 25% of the previous lifetime allowance of £1,073,100.
In a further welcome announcement, Jeremy Hunt also confirmed that the annual allowance for pension contributions of £40,000 would be increased to £60,000, also from April 2023.
With Corporation Tax increased to 25% from this month (and with a marginal Corporation Tax rate of 26.5% for profits between £50k and £250k pa) this is great news for successful business owners that were previously at or close to the limit, as they can now continue to make company contributions into their pensions, obtaining a welcome Corporation Tax saving from doing so.
Alongside these main changes, there is also an increase to the money purchase annual allowance, from £4,000 pa to £10,000 pa. This allowance applies to those who have started to draw on their pensions and limits the amount they can continue to contribute into the pension savings. This increase therefore adds some welcome flexibility for those aged over 55.
In addition, the minimum tapered annual allowance for higher earners is also increased from £4,000 pa to £10,000 pa from this month, with the adjusted income threshold increased from £240,000 to £260,000. This change allows high earners to pay more into their pensions, so that they can benefit from the associate tax savings.
As you will see in this month’s Insight article, we’re now able to offer independent financial advice on pensions and investments, through our new joint venture, KRW Financial Planning. So, if you have any questions on these changes then please contact Ben (link please to: bfoster@krwfinancialplanning.co.uk) or Alan (link please to: atytherleigh@krwfinancialplanning.co.uk) .
Key Facts
- Lifetime allowance charge removed this month, and abolished completely from April 2024
- Tax-free lump sum of 25% of pension savings remains, but now capped at £268,275
- Annual allowance for pension contributions increased from £40k to £60k from April 2023
- Money purchase annual allowance and lower threshold for high earners increased to £10k
- With Corporation Tax rates increased this month, this is welcome news for business owners
For further advice on this matter, please contact me.
Plan to promote investment, training & innovation arrives Autumn 2022
Keith Witchell
A 3 point plan was also announced to boost productivity and growth in the private sector, which will include more tax incentives for capital expenditure, better schemes for training and apprenticeships, and a reform and potential boost to R&D tax credits, all of which will be set out in the Chancellors Autumn Statement later this year.
For further advice on this matter, please contact me.
National insurance threshold increased by £3K pa from July 2022
Keith Witchell
Amidst rapidly rising cost of living, and the already announced 1.25% National Insurance hike from April, Rishi Sunak announced some welcome and much needed relief, by confirming an increase in the Employees NIC threshold from July 2022, which will align it with the tax-free personal allowance. This is an increase from the planned level of £9,880 per annum to £12,570 per annum from July.
For further advice on this matter, please contact me.
£1M annual investment allowance extended to March 2023
Keith Witchell
The current £1m annual investment allowance which allows businesses to claim tax relief on 100% of capital expenditure has been extended by a year until 31 March 2023. This continues to run alongside the more generous 130% super deduction relief that applies to the purchase of brand new assets (and remains unlimited).
For further advice on this matter, please contact me.
0% VAT on energy saving home improvements
Keith Witchell
The Chancellor referred to post-Brexit freedoms allowing a reform of the eligibility conditions to qualify for reduced VAT on the installation of energy saving materials (ESMs), such as solar panels, to widen its scope, while also reducing the VAT rate on the installation of ESMs from 5% to 0% temporarily, from April 2022.
For further advice on this matter, please contact me.
Commitment to cut basic rate income tax to 19% by 2024
Keith Witchell
The Chancellor also confirmed the government’s commitment to reduce income taxes by the end of parliament by announcing the first cut to basic rate income tax in 16 years, from the current rate of 20% to 19%, from April 2024.
For further advice on this matter, please contact me.
Optimum salary levels for company owners from April 2022
Keith Witchell
Every tax year the National Insurance and tax thresholds change, and then last week Rishi Sunak announced an alignment of the NIC and tax thresholds from July 2022.
With a new tax year almost upon us, the government announced the NIC thresholds that will apply from April 2022 onwards, as follows:
| Pay Frequency | LEL | PT | ST | UEL |
| Weekly | £123 | £190 | £175 | £967 |
| Monthly | £533 | £823 | £758 | £4,189 |
| Yearly | £6,396 | £9,880 | £9,100 | £50,270 |
| Then, from July 2022: | ||||
| Pay Frequency | LEL | PT | ST | UEL |
| Weekly | £123 | £242 | £175 | £967 |
| Monthly | £533 | £1,048 | £758 | £4,189 |
| Yearly | £6,396 | £12,570 | £9,100 | £50,270 |
For those not well versed in National Insurance acronyms, the above headings can be deciphered as follows:
Acronym Name What it means!
LEL Lower Earnings Limit Above this level earnings count for state pension etc
PT Primary Threshold Above this level Employees NIC kicks in @ 13.25%
ST Secondary Threshold Above this level Employers NIC kinks in @ 15.05%
UEL Upper Earnings Limit Above this level Employees NIC reduces to 3.25%
The above NIC rates have all risen by 1.25% from April 2022, as previously announced.
What about tax? The personal allowance remains at £12,570 from April 2022, while the higher rate tax threshold also stays static at £50,270.
So, what is the optimum salary level for you? The answer depends on a couple of factors, but also this year with the NIC primary threshold increasing from July, a pro-rated salary level is needed to ensure a consistent monthly salary for the 2022/23 tax year for many Directors.
Our advice can be broadly summarised as follows:
| Salary level | Who for? | Why? |
| £11,898 | If Director is only employee OR if £5k employment allowance fully used against other staff | Above £9,100 19% Corporation Tax saving vs 15.05% Employers NIC cost yields overall saving but above £11,898 triggers 28.3% NIC |
| £12,570 | If other employees but balance of employment allowance left | As no Employers NIC to pay, 13.25% Employees NIC cost for 3 months outweighed by 19% CT saving |
A good way to look at optimum salaries is to consider the tax cost of the alternatives. So looking at the above two salary levels, the first gives an Employers NIC cost of £421 for the year, which applies in January, February and March 2023 and means some NIC for the company to pay over to HMRC, but it saves Corporation Tax at 19% on the salary over £9,100, which equates to £531.62. Therefore, an overall saving of £110.62, compared to taking a lower salary and more dividends, which would be taxed at 8.75% (minimum). So the true saving is actually higher, when compared to the alternative.
Likewise, with the second option there will be £89 of 13.25% Employees NIC triggered in March 2023, but this is outweighed by the 19% Corporation Tax saving on the extra salary, plus the dividend tax saved by taking extra salary rather than extra dividends.
We’ll be in touch further soon with our recommendations for each client, but in the meantime, for further advice on this matter, please contact your Client Manager, or one of our payroll team.
Key Facts
- Employees NIC threshold rises to £9,880 pa from April 2022, then to £12,570 from July 2022
- Employers NIC threshold rises from £8,840 pa to £9,100 pa from April 2022
- The tax-free personal allowance remains @ £12,570; the higher rate threshold stays @ £50,270
- Our recommended optimum salary for one person company Directors will be £11,898 pa
- If more than one Director/employee & Employment Allowance not used up we advise £12,570 pa
For further advice on this matter, please contact me.
Will my business qualify for the new £5k per annum employment allowance?
Keith Witchell
Against the backdrop of the 1.25% increase in the rate of Employers NIC from April 2022, Rishi Sunak announced a welcome increase in the Employment allowance from £4k to £5k per annum.
So what is the Employment Allowance? First introduced in 2014, the Employment Allowance reduces the amount of Employers’ NIC that eligible businesses have to pay on their staff salaries by a fixed amount per annum.
How much is it? Originally introduced at a level of £2,000 per annum, the Employment Allowance has increased over recent years, and last week the Chancellor announced a further increase from £4,000 to £5,000 per annum from April 2022.
How does it actually work? When your salaries are processed through the payroll the Employers NIC on the salaries you pay your staff (and yourself) is calculated and this is normally payable to HMRC each month as part of your overall PAYE/NIC liability. However, the Employment Allowance removes the Employers NIC liability for each month until it is fully utilised. For some employers with just one or two staff this could then be used over several months, whereas larger employers might fully utilise it in April. But providing the Employment Allowance box is ticked on your payroll software, then this is calculated automatically.
Which businesses qualify for the Employment Allowance? If you are a business or a charity (which includes community amateur sports clubs) and your Employers’ Class 1 National Insurance liabilities were less than £100,000 in the previous tax year, then you will qualify for it. You can also claim if you employ a care or support worker. However sole Director companies with no other employees cannot claim the allowance (see below).
What about groups of companies? If you’re part of a group then you will only qualify if the total Employers’ NIC liability of the whole group is under £100,000, and even then only one company in the group can claim it.
Why can’t sole Director companies claim the Employment Allowance? The rules state that if there is only one employee on your payroll, and that person is also a Director, then that business will not qualify for the Employment Allowance. However, a sole Director that also pays another person a salary at least equal to the Class 1 NIC secondary threshold of £9,100 per annum (from April 2022) will qualify for the Employment Allowance.
Are there any other exclusions? Yes, if you employ someone for personal, household or domestic work then the Employment Allowance cannot be used against the Employers’ NIC on their salaries.
For further advice on this please don’t hesitate to contact me.
Key Facts
- Employment Allowance increased from £4k to £5k pa from April 2022
- It covers part of your Employers NIC liability for the year
- You’ll qualify if your Employers NIC bill last year was less than £100k
- However, for groups that limit applies to the group as a whole
- Sole Directors with no other employees on the payroll do not qualify for it
For further advice on this matter, please contact me.
KRW team update: introducing Paul Brown & Candice Jackson-hobbs
Keith Witchell
As a result of some team changes, we are pleased to report that Paul Brown and Candice Jackson-Hobbs both joined the team earlier this month.
As some of you may remember from a previous bulletin, Laura Franklin left us before Christmas, and we are pleased to introduce Paul Brown as her replacement Client Manager.
Paul lives locally and joins us from a similar sized firm, where he held the role of Manager. Paul is ACCA qualified, and brings with him plenty of experience and enthusiasm. We can already tell that he is going to fit into the team perfectly, as he shares our values, and wants to help and support clients rather than just prepare their accounts.
Outside of work Paul is an avid cricketer and an all round sports fan, supporting Spurs, Northampton Saints and any other team out there sponsored by Cinch! Paul is also a father to two young children which keeps him very busy!
In other team news, we’re sad to report that Melissa Grummett is leaving us, after 5 years with the firm. Melissa had two main roles at KRW: Company Secretarial; and new client onboarding. With Diane already looking after Confirmation Statements, we’re going to ask our lovely Client Managers to assist their clients with other Company Secretarial duties, such as Director changes and share transfers, which further reinforces their support role to their portfolio of clients.
Turning to new client onboarding, we’re pleased to announce that Candice Jackson-Hobbs has joined us to head up this function, and also to look after new company formations. Candice recently relocated to the area and has prior of experience of working for an accountancy practice. She’s young and tech-savvy which is perfect for this role, as we are always looking to streamline the process for taking on new clients and to make changing accountants as seamless as possible.
Outside of the office, Candice is an avid gamer, with League of Legends being a personal favourite of hers.
We’re also pleased to report that two of our Client Managers, Mollie Marshall and Ann Hannigan, have been promoted to Senior Client Managers. They will each still be looking after a portfolio of clients as before but are also now helping with managing the team, including our trainees, to ensure the quality of our work remains high as we continue to grow the practice.
Key Facts
- Paul Brown replaces Laura Franklin as an ACCA qualified Client Manager
- Melissa Grummett is leaving us after 5 years with the firm
- Candice Jackson-Hobbs has joined us to look after new client onboarding
- Mollie Marshall and Ann Hannigan have both been promoted to Senior Client Managers
For further advice on this matter, please contact me.
Class 2 & 4 NIC thresholds also increased to £12,570 from April 2022
Keith Witchell
For self-employed taxpayers, Class 4 NIC applies to all profits over the lower profits limit, and this limit will also increase from the planned £9,880 per annum to £12,570 per annum from July 2022, while the threshold for paying Class 2 NICs will also increase to £12,570 from April 2022. However, the 1.25% increase in Class 4 NIC will still go ahead as planned next month.
For further advice on this matter, please contact me.