Will Farmer FMAAT 
March 23, 2022

Spring Statement 2022 - Update for Limited Company Directors, Sole Traders and Partnerships

On Wednesday 23rd March 2022, Chancellor of the Exchequer Rishi Sunak set out the governments financial forecasts in addition to changes to taxes and benefits for the coming financial year and beyond.

The key points for limited company directors, sole traders and partnerships are as follows;

- A cut of 5p in fuel duty until March 2023, reducing the cost of petrol and diesel for businesses;

- Class 1 (Employees and Limited Company Directors) and Class 4 (Self-Employed Sole Traders and Partnerships) National Insurance thresholds will rise to £12,570 from July 2022. This is the amount that can be earned before Class 1 and 4 NI is paid;

- Increase in the employment allowance to £5,000. This is an annual allowance used to offset employers NI contributions for the year and is applicable to companies with at least two employees with incomes above the employers NI threshold of £9,100 per year (one of which isn't a director);

- A reduction in the basic rate of income tax from 20% to 19% from 2024;

- Class 1 and 4 National Insurance and Dividend Tax will increase by 1.25% with the "health and social care levy" from April 2022 as planned;

- Planned changes to Corporation Tax will continue as set out in the 2021 budget (more details can be found here - www.matrix-accounts.com/blog-posts/corporation-tax-super-deductions-all-you-need-to-know-and-how-your-company-could-benefit).

- For the next five years, there will be no VAT applied to energy-saving materials including solar panels, heat pumps and insulation.

- Improvements to R&D tax reliefs, with support for data and cloud computing costs, refocusing relief on R&D undertaken in the UK, and allowing businesses to claim relief on R&D supported by pure maths. The governments total R&D tax credit budget will increase by £5 billion to a total of £20 billion by 2024.

What impact does the Spring Statement have on Limited Company Directors?

Limited Company Directors will pay a higher rate of dividend tax from April 2022 with the "health and social care levy" increasing dividend tax to 8.75% (currently 7.5%) on earnings above £12,570 per year.

There is also no update to the planned increase in Corporation Tax rates for profits above £50,000 per year.

With the increase in the Employees National Insurance (Class 1 NI) threshold to £12,570 from July 2022 it will become more tax efficient for limited company directors (not employed via PAYE elsewhere) to pay themselves a higher monthly salary of £1,047.50 from July. This works out as £11,702.50 for the 21/22 tax year (13 weeks of £9,100 and 39 weeks of £12,570).

What impact does the Spring Statement have on Sole Traders and Partnerships?

The Class 4 National Insurance threshold will increase from £9,880 to £12,570 from July 2022.

Class 4 National Insurance paid by sole traders and partnerships will increase by 1.25% to 13.25% on earnings above £9,880 (rising to £12,570) from April 2022.

From 2024 sole traders and partnerships will pay a lower rate of income tax (19% compared to 20% now) on income above £12,570.

For further advice and support you can book a free consultation by following this link - https://calendly.com/matrixaccounts