Personal Income Tax
Tax rates and allowances – 2022/23 (Table A)
As announced in the March 2021 Budget, the income tax rates and bands and the main allowances are frozen at their 2021/22 levels until the end of 2025/26, instead of their usual inflationary increases each year. Although this means that someone with the same income will pay the same tax year on year, the effect of inflation on salaries and business profits means that this represents a significant tax increase over the period (£8 billion in extra government receipts forecast for 2025/26 compared to annual increases in bands and allowances).
There are no changes to the income levels at which the High Income Child Benefit Charge begins to claw back Child Benefit receipts (£50,000) and at which tax-free personal allowances are withdrawn (£100,000). These measures create a higher marginal tax rate in the income bands £50,000 – £60,000 (for those in receipt of Child Benefit) and £100,000 – £125,140 (as the personal allowance is reduced to nil).
The Scottish Parliament sets its own tax rates and thresholds for Scottish taxpayers for non-savings, non-dividend income. It will announce its Budget for 2022/23 on 9 December. The Welsh Government has similar powers for Welsh taxpayers, but has not varied the main UK rates.
Dividend income
The tax rates on dividend income over £2,000 will increase for the tax year 2022/23. The ordinary rate, paid by basic rate taxpayers, will rise from 7.5% to 8.75%; the upper rate becomes 33.75% (from 32.5%) and the additional rate 39.35% (from 38.1%). These rates will apply across the UK. The addition of 1.25% to each rate is related to the increases in National Insurance Contributions and the introduction of the Health and Social Care Levy described further below, and is intended to ensure that individuals who work through companies and take their profits as dividends rather than salary cannot avoid paying the charge. However, it will also apply to dividends from passive investments, as well as from personal companies.
The 33.75% rate will also apply to tax payable by close companies on ‘loans to participators’ that are not repaid to the company within 9 months of the end of the accounting period.
High Income Child Benefit Charge (HICBC)
The HICBC applies where a taxpayer has income of over £50,000 and is the higher earner of a couple where one partner receives Child Benefit. A tax case showed that HMRC could not raise a ‘discovery’ assessment where a person had not been aware they were liable for this charge and had not been asked to file a tax return. The law will be amended with retrospective effect to enable HMRC to collect the charge in these circumstances.