Self-employed tax brackets 2022/23: new thresholds, rates and allowances

What will self-employment tax be for 2022/23? There are usually new UK tax brackets and other updates to thresholds introduced each April.

So here are eight self-employed tax changes to understand, from National Insurance hikes to a new plastic packaging tax.

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1. What’s the personal allowance 2022/23?

The personal allowance in 2022/23 will remain £12,570. This is how much you can earn tax free.

The government has frozen this tax allowance until 2026. Businesses and taxpayers in general face rising costs throughout 2022, so could feel the pinch of this personal allowance freeze.

And over the long-term, if earnings rise and the personal allowance stays the same, then you’ll pay more in tax.

UK tax brackets 2022 the self-employed should know

These are the income tax rates and thresholds the self-employed should be aware of in 2022/23 (these are the same as 2021/22):

• basic rate – 20 per cent on income between £12,571 and £50,270 – you pay tax on £37,700
• higher rate – 40 per cent on income between £50,271 and £150,000
• additional rate– 45 per cent on income above £150,000

There are different bands and rates for Scotland.

2. Increase to the National Insurance tax rate

The self-employed usually pay both Class 2 and Class 4 National Insurance through their annual Self Assessment tax return.

Small business owners with staff also need to pay employee National Insurance contributions via payroll.

In 2022/23, National Insurance tax rates are increasing by 1.25 percentage points. This is one of the ways the government is hoping to pay for the costs of its coronavirus response.

The rise is temporary and will be replaced by the Health and Social Care Levy in 2023. This levy is also 1.25 per cent.

The government has announced that National Insurance thresholds will increase from July 2022. This means that you can earn more before you start paying National Insurance. Read more in our Spring Statement update for small businesses.

Tax thresholds for Class 2 NICs and Class 4 NICs

Here are the National Insurance rates:

• Class 2 NICs at £3.15 per week (£3.05 in 2021/22)
• Class 4 NICs up to the upper profits limit at 10.25 per cent (nine per cent in 2021/22)
• Class 4 NICs above the upper profits limit at 3.25 per cent (two per cent in 2021/22)

Employer and employee National Insurance contributions (Class 1)

If you’re an employer, or also have income from employment, here are the Class 1 National Insurance tax thresholds.

Tax thresholds for Class 1 (primary) National Insurance

Earnings above the primary threshold incur NICs at 13.25 per cent in 2022/23 (12 per cent in 2021/22).

Earnings above the upper earnings limit incur NICs at 3.25 per cent in 2022/23 (two per cent in 2021/22).

Tax thresholds for Class 1 (secondary) National Insurance

Employer NICs are due on annual salary payments to employees above a certain threshold. This is £9,100 in 2022/23 (a weekly threshold of £175). This increases from £8,840 in 2021/22.

The rate is 15.05 per cent in 2022/23 (up from 13.8 per cent in 2021/22).

National Insurance is also due at this rate on any work benefits you give employees.

3. Changes to wage rates for employers

Read more about the national minimum wage.

4. Tax rates for dividends in 2022/23

Not only are National Insurance rates rising, the dividend tax rate is increasing too. This is another measure designed to help pay for the government’s coronavirus response.

It’s increasing by 1.25 percentage points, so you’ll pay dividend tax on the dividends you earn above £2,000 (the dividend allowance) at these rates:

• basic rate taxpayers – 8.75 per cent (up from 7.5 per cent)
• higher rate taxpayers – 33.75 per cent (up from 32.5 per cent)
• additional rate taxpayers – 39.35 per cent (up from 38.1 per cent)

5. Making Tax Digital extended to all VAT-registered businesses

Making Tax Digital has been in place since 2019 for VAT-registered businesses with a taxable turnover of more than £85,000.

This system requires businesses to keep digital records and file VAT returns digitally. Businesses need to use relevant accounting software.

The next phase of Making Tax Digital is starting in April 2022. It removes the turnover threshold, meaning all VAT-registered businesses will need to use the system.

Eventually all taxpayers will need to use Making Tax Digital, but it won’t apply for Self Assessment returns until at least 2025.

Read more about Making Tax Digital.

6. More time to understand points-based tax penalties

While a new points-based system for tax penalties was due to start in April 2022, it’s been delayed until January 2023.

The new penalties were supposed to launch for VAT alongside Making Tax Digital’s rollout to all VAT-registered businesses in April, but HMRC’s systems won’t be ready in time.

As the new points-based penalties have been postponed, businesses have more time to get up to speed with the changes.

7. A new tax introduced for 2022

If you manufacture or import plastic packaging as part of your business, you may be subject to the new plastic packaging tax from April 2022.

According to gov.uk, it applies “if you’ve manufactured or imported 10 or more tonnes of finished plastic packaging components within the last 12 months, or will do so in the next 30 days.”

If you meet either of those thresholds, then you need to register for the tax. Read more about the plastic packaging tax.

8. Business rates discount

While businesses face rising costs and tax increases, there’s some good news for retail, hospitality and leisure businesses.

As announced at the Autumn Budget, they’ll get a 50 per cent discount on their business rates, up to £110,000 per business. An increase to business rate multipliers has also been paused for 2022/23. However, this discount is still reduced from a previous discount of 66 per cent, to help business struggling with lockdown.

This discount should be automatically administered by local authorities.

Other UK tax brackets 2022

• the capital gains tax allowance remains £12,300 for individuals and £6,150 for trusts (the rates remain the same too)
• corporation tax remains 19 per cent, but this will increase for larger businesses in 2023
• other allowances remain the same, including the Individual Savings Account (ISA) allowance at £20,000, the dividend tax allowance at £2,000, and no changes to tax on savings interest
• as announced at Spring Statement, fuel duty has been cut by 5p a litre and the Employment Allowance increases from £4,000 to £5,000

Please use this article as a guide and get professional tax advice if you're not sure about anything.