Concerned businesses and consumers tuned into the autumn statement on 17 November, as the Chancellor detailed his plan to restore stability to the UK economy and drive prosperity. We’ve outlined key highlights that payroll professionals should be aware of below.
Key changes include tax rises of £25 billion by 2027-28 driven by a lowering of the 45p rate threshold and National Insurance Contributions (NIC) thresholds for employees and employers frozen until April 2028. The increased benefits cap and National Living Wage increases have been promised in the new tax year, to support low-income earners. The Pensions triple lock has also been confirmed for April 2023, as has state benefit increases that match inflation.
Let’s look at the changes in more detail.
Tax changes from April 2023
The underlying message of tax reforms are that workers and businesses with ‘the broadest shoulders’ should contribute more, while avoiding tax rises that make the UK an undesirable place to trade.
Of note, the first change was as expected. From the new tax year, the earnings cap for the 45p additional tax rate will be slashed from £150,000 to £125,140. Speculation on an actual rate change proved untrue, with the rate being maintained for another year.
Additionally, the Chancellor froze income tax thresholds and allowances until April 2028, a stealth tax on the workforce who will ultimately pay more tax throughout the period as their wages grow. While collecting more funds for the Treasury, the move, coupled with increased costs of living may see lowest paid workers incomes fall significantly in real terms.
Employers should be vigilant of their lowest paid workers financial wellbeing.
A 10.1% inflationary increase to married couple and blind person’s tax was also announced. In the new tax year, married couples’ allowance was announced at £4,010 and £10,375. For the same period, the blind person’s allowance rises to £2,870.
Changes to National Insurance in the new tax year
After last year’s shifting NIC rates and thresholds, thew new tax year brings a little more stability. The current National Insurance thresholds for primary and upper earnings limit, will be extended an additional two years beyond planned, running to the end of the tax year in April 2028 instead of 2026.
Furthermore, employer secondary threshold is fixed at £9,100 from 6 April 2023 until 5 April 2028. Employment allowance is fixed for the same period at £5,000.
Changes to National Living Wage and Benefits in the new tax year
As expected, national living wage and benefits are set to increase somewhat in line with inflation.
As of 5 April 2023, the living wage increases by 9.7% from £9.50 to £10.42, providing much needed cost of living increases to over 2 million low paid workers. Additionally, around £11billion will be directed towards increasing benefits in line with inflation, with the Chancellor promising a 10.1% increase, matching the Consumer Price Index (CPI) trend for September 2022.
Changes to Pensions in the new tax year
Pensions have been a hot topic over the last year, with speculation on whether the Chancellor would extend the triple lock, committing to increasing pensions by the highest of either average earnings growth, inflation or 2.5%. The triple lock will be met in the new tax year, meaning that state pensions will get the same inflationary treatment as state benefits: an increase of 10.1% in line with Septembers CPI. This sees the full basic state pension increasing from £141.85 to £156.20. The new state pension is set to increase from £185.15 to £203.85. Pension credit will also increase in line with inflation in the new tax year.
A one-off payment to help with the cost-of-living crisis has also been promised to pensioners, with more information on eligibility criteria and payment dates to follow.
State pension age is also under review and will be announced by the Department or Works and Pensions (DWP) in 2023.
Outsourced payroll services
Staying up to date with constant changes to social, public and tax policy and manual updates of internal payroll processes can be costly, resource-heavy and time-consuming. The implications of getting changes wrong are vast.