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Payroll in the UK – 2022 Updates
Here are some of the changes that were taken by the UK authorities from 6 April 2022:
National Insurance - One of the biggest changes for 2022/23 is the increase in National Insurance rates by 1.25%. This increase is the precursor to the introduction of the Health and Social Care Levy (H&SCL) on 6 April 2023.
From April 2023, the NIC rates will drop back to current levels and the extra 1.25% will be rebadged as the H&SCL. This will then also apply to individuals over pension age who are still working – although not to any actual pension income. At present, those over pension age are not required to pay any NIC on their earnings.
Tax rates and allowances - Although both National Insurance rates and thresholds will be increasing from April 2022, most other key tax rates and allowances have been frozen in 2022/23 for English, Welsh and Northern Irish taxpayers including:
- The personal allowance – which remains at £12,570.
- The basic rate threshold for income tax – which remains at £50,270.
- The higher rate threshold at which 45% tax rates apply - which remains at £150,000.
- The annual allowance and lifetime allowance for pensions will be unchanged at £40,000 and £1,073,100 respectively.
Scottish taxpayers will though see some changes to their calculation as the Scottish Government confirmed small adjustments to their system of five rate bands at the Scottish budget on 9 December 2021.
National Minimum Wage/National Living Wage - Following the recommendations of the Low Pay Commission (LPC), the Government increased the National Living Wage (NLW) for individuals aged 23 and over from £8.91 to £9.50 an hour effective from 1 April 2022.
End of temporary reliefs for homeworking and covid testing- Several temporary reliefs introduced during the pandemic will come to an end on 5 April 2022 unless the Treasury grants further extensions in the coming months. These are:
- Employer covid testing exemption
- Exemption for employer reimbursement of home office expenses
- Automatic relief for homeworking
Veterans - Although the special NIC relief for employers who take on armed service veterans came into effect from 6 April 2021, it was necessary during 2021/22 to calculate and pay NIC and then claim it back. From 6 April 2022, a new code letter ‘V’ allows employers to benefit from the relief on Employers NIC upfront.
UK Payroll – Basic Facts
In the UK, employers are obliged to deduct employee contributions from the employee’s gross wage and transfer tax deductions on a monthly basis to Her Majesty’s Revenue and Customs (HMRC). Employers in Scotland are subject to a tax band that differs from the rest of the UK. Other deductions employers must consider include PAYE, national insurance contributions (NICs), student loans, and pension contributions. If payroll is run in-house, employee payments and deductions need to be reported to Her Majesty’s Revenue and Customs (HMRC) prior to payday. At the end of each tax year, it is necessary to conduct an annual report and report any expenses or benefits to the HMRC. The tax year in the UK runs from April 6th to April 5th of the following year.
The official currency of the UK is the pound sterling, often referred to just as sterling or as the British pound (GBP).
Tax and Social Security Considerations
Corporation Tax
2022/23 Income tax in England, Wales, and Northern Ireland
Tax Rate (%) |
2022/23 |
2021/22 |
Personal allowance: How much income you can earn before you start to pay income tax. No tax on this income. |
£0 – £12,570 |
£0 – £12,570 |
Basic rate income tax: 20% tax on the proportion of income that falls into this tax bracket. |
£12,571 – £50,270 |
£12,571 – £50,270 |
Higher rate income tax: The part of your income that falls into this tax band is taxed at 40% |
£50,271 – £150,000 |
£50,271 – £150,000 |
Additional rate income tax: This is the highest rate. The income you earn above this threshold is subject to tax at 45% |
£150,000 + |
£150,000 + |
If you earn a self-employed or salaried income of £60,000 in the 2022/23 tax year, you’ll pay:
- 0% tax on the first £12,570
- 20% basic rate tax on the part of your income that falls into the next tax bracket (£12,571 up to £50,270). This means you’ll pay 20% tax on £37,700.
- 40% higher rate income tax on the next chunk (£50,271 up to £60,000), so you’ll pay 40% tax on £9,730.
Withholding Tax
2022/23 Income tax in England, Wales, and Northern Ireland
Dividends– From the 2022-23 tax year, basic rate dividend tax will be charged at 8.75%.
Tax on saving interest – You may also get up to £5,000 of interest and not have to pay tax on it. This is your starting rate for savings.
The more you earn from other income (for example your wages or pension), the less your starting rate for savings will be.
If your other income is £17,570 or more
You’re not eligible for the starting rate for savings if your other income is £17,570 or more.
If your other income is less than £17,570
Your starting rate for savings is a maximum of £5,000. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1.
- Royalties - Royalties paid to a nonresident generally are subject to a 20% withholding tax, unless the rate is reduced under a tax treaty.
- Capital gains tax
Annual exemption amount |
2022/23 |
|
Individuals, estates |
£12,300 |
|
Most trusts |
6,150 |
|
Tax rate |
|
|
Individual (to basic rate limit)* |
10% |
|
Individual (above basic rate limit)* |
20% |
|
Trusts, estates* |
20% |
|
Business Asset Disposal Relief (BADR)** |
10% |
|
Investors’ Relief (IR)*** |
10% |
Individuals are taxed at 18%/28% on gains on residential property and receipts of carried interest. Trusts and estates are taxed at 28% in these circumstances.
BADR is available on qualifying gains of up to £1m.
Shares in an unquoted trading company may qualify for lifetime gains up to £10m.
National Insurance Contributions
National Insurance Contributions (NICs) are contributions to the HMRC which help fund the National Health Service, Statutory Leave Benefits, State Pensions and Workers’ Compensations. A UK employee’s National Contributions are deducted from the gross salary through Pay As You Earn (PAYE). These contributions are then transferred to Her Majesty’s Revenue & Customers (HMRC) on a monthly or yearly basis. National Insurance Contributions are paid if the employee is 16 years or over and earn above £190 per week. There are several classes of National Insurance Contributions (NICs). The type of payment made depends on how much an employee earns and if there are any gaps in the employee's NIC record. The current National Insurance threshold is £9,880 a year. From 6th July 2022 onwards, this will go up to £241.73 per week and £12,570 a year.
The table below shows the rates and thresholds for each class of National Insurance for employers, employees, and the self-employed.
- Class 1 (primary) National Insurance. Paid by employees on the wages they earn working for someone else.
- Class 1 (secondary) NI. Paid by employers, who make NI contributions towards their employees’ NI.
- Class 1A or 1B National Insurance. Some employers might also need to make NI contributions on the equivalent financial value if they provide any work benefits (sometimes known as Benefits in Kind, or BiKs) to employees.
- Class 2 NI. Self-employed people pay Class 2 NI on what they earn through their business activities.
- Class 3 NI. These are voluntary contributions that you can make if you need to top up the amount you have paid in a tax year.
- Class 4 NI. Depending on how much they earn, self-employed people might also pay Class 4 NI on their business activities.
From April 2022 there will be a temporary increase to the rate of Class 1 and Class 4 NI, though these rates will return to normal the following year. This is because of the new Health and Social Care Levy.
National Insurance Class |
Class Explanation |
Class 1 |
Employees earning over £190 per week (6th April – 5th July 2022) and £241.73 (6th July 2022 onwards), and under State Pension Age |
Class 1A or 1B |
Employers pay these directly on their employee’s expenses or benefits |
Class 2 |
Self-employed citizens |
Class 3 |
Voluntary Contributions – Payments on this are made to fill or avoid gaps in a citizens NIC |
Class 4 |
Self-employed people earning a profit over £9,501 per annum |
Classes Of National Insurance Contributions (NICS)
Workplace Pension:
Since January 2018, it is an obligation for employers to provide a Workplace Pension Scheme to eligible employees. Employers must automatically enroll employees into the scheme once they meet the following criteria:
- Is aged between 22 and State Pension age.
- Earns at least £10,000 per annum.
The amount paid by both employees and employer depends on a number of variables including, the type of pension scheme the employee is enrolled in and whether the employee has been enrolled automatically or voluntarily.
Compensation and Benefits
Minimum Wage
The national minimum wage varies depending on the employee’s age and if the position they are employed in is an apprenticeship. The wage rates below indicate the current National Minimum wage for employees of school-leaving age and the National Minimum wage as of the 1st of April 2022.
New rates of the National Living Wage (NLW) and National Minimum Wage (NMW) come into force on 1 April 2022.
Age range |
Rate from April 2022 |
National Living Wage |
£9.50 |
21–22-Year Old Rate |
£9.18 |
18–20-Year Old Rate |
£6.83 |
16-17 Year Old Rate |
£4.81 |
Apprentice Rate |
£4.81 |
Accommodation Offset |
£8.70 |
Overtime
There are no mandatory laws on overtime in the UK. Employees are only obliged to work overtime if a contractual agreement is made between the employee and employer.
Hours of Work
Working Time Regulations in the UK state that employees can't work more than 48 hours per week on average. An exception to this rule is employees who are under 18 years of age. Employees within this age group cant work for more than 40 hours per week or 8 hours per day. A working week in the UK is generally 8 hours per day from Monday to Friday. Employees can choose to opt out of the 48-hour week if they wish to do so.
Holidays
Almost all employees working a 5-day week within the UK are entitled to 5.6 weeks or 28 days of statutory annual leave per year. Employers can include bank holidays as part of the annual leave. Annual leave doesn't automatically carry over from year to year unless noted in an employee's contract. Holiday work for part-time employees, people working irregular hours such as shift work or term-time work is calculated on a pro-rata basis.
Leaves
If the employee doesn't wish to take their full maternity leave entitlement, they are obliged to take 2 weeks' leave after the birth of the baby. This is increased to four weeks if the employee works in a factory. If an employee wishes to change the date of return to work, employees must give employers at least eight weeks' notice prior to the date of return. In terms of Statutory Maternity Pay, payments can be made up to 39 weeks of Maternity Leave. For the first 6 weeks, the employer is obliged to pay the employee 90% of the average weekly earnings. For the following 33 weeks, the employer is obliged to pay the lower of £156.66 or 90% of the employee's average weekly earnings. In the case of Paternity Leave, employees can choose to take either 1 week or two consecutive weeks of leave. Paternity Leave can't start before the birth of the child and leave must finish within 56 days of the birth.
Foreign employees in the UK
Visa requirements
Freedom of movement between the UK and the EU has now ended and the UK has introduced a new immigration system. As an employer, you must check that job applicants have the legal right to work in the UK before they start their employment. The EU Settlement Scheme ended on 30 June 2021 (although applicants may still apply after this date where they have a 'reasonable excuse for making the application late).
Taxes
Non-residents are taxed at the same rates as residents; however, they may not be entitled to any UK personal allowances. Their entitlement will depend on their nationality and/or country/jurisdiction of residence and the applicable double tax treaty in force.
For more information about how our Global Payroll Control Platform integrates with local payroll providers in the UK, contact us today.