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commonslibrary.parliament.uk

Research Briefing

By Antony Seely

6 April 2022
Direct taxes: rates and
allowances 2022/23

1 Rates and thresholds
2 Income tax allowances
3 Income tax: other allowances and reliefs
4 Other direct taxes
5 Main personal income tax rates & allowances since 1990/91

Direct taxes: rates and allowances 2022/23

2 Commons Library Research Briefing, 6 April 2022

Number 9489

Contributing Authors
– Credits
GladGladstone’s red box by The National Archives UK. Image cropped. No
known copyright restrictions.

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Direct taxes: rates and allowances 2022/23

3 Commons Library Research Briefing, 6 April 2022

1 Rates and thresholds 6

1.1 Income tax 6

Income from earnings, pensions, profits 6

Scottish taxpayers 7

Savings and dividend income 7

1.2 National Insurance contributions 8

2 Income tax allowances 13

2.1 Personal allowance 13

2.2 Blind person’s allowance 14

2.3 Transferable allowance for married couples and civil partners 14

2.4 Indexation 14

2.5 Age-related allowances (withdrawn) 16

2.6 Transitional allowances for older people 16

Married couple’s allowance 17

Tax relief for maintenance payments 17

3 Income tax: other allowances and reliefs 19

3.1 Company cars and free fuel 19

3.2 Pensions – annual and lifetime allowances 20

3.3 Charities 22

4 Other direct taxes 23

4.1 Capital gains tax 23

4.2 Inheritance tax 24

5 Main personal income tax rates & allowances since 1990/91 25

Direct taxes: rates and allowances 2022/23

4 Commons Library Research Briefing, 6 April 2022

This paper sets out direct tax rates and principal tax allowances for the
2022/23 tax year, as confirmed in the Autumn 2021 Budget on 27 October
2021 and the Spring Statement on 23 March 2022. The paper outlines the
conditions necessary for eligibility for these tax allowances and provides a
summary of the general tax position in straightforward cases.

Income tax

Income tax on earned income is charged at three rates: the basic rate, the
higher rate and the additional rate.

For 2022/23 these three rates are 20%, 40% and 45% respectively. Tax is
charged on taxable income at the basic rate up to the basic rate limit, set at
£37,700. ‘Taxable income’ excludes personal allowances, which represent
the amount of money someone may receive free of tax. Tax is charged at the
higher rate on taxable income between the basic rate limit and the higher
rate limit, set at £150,000. The additional rate is charged on taxable income
over £150,000. All three tax rates are unchanged from 2021/22.

Personal allowance

The personal allowance is set at £12,570 for 2022/23. Both the personal
allowance and the basic rate limit have been fixed in value from 2021/22. As
a result the higher rate threshold – the point at which individuals become
liable to pay tax at the higher rate – remains unchanged at £50,270 for

Marriage allowance

Married couples and civil partners may be entitled to claim the marriage
allowance. Individuals whose income is insufficient to make full use of their
personal allowance may transfer this unused fraction to their spouse or civil
partner, up to a set amount. Individuals cannot make use of this provision if
their spouse or partner pays more than the basic rate of tax. For 2022/23 the
maximum that can be transferred is £1,260.

https://www.gov.uk/government/topical-events/autumn-budget-and-spending-review-2021
https://www.gov.uk/government/topical-events/spring-statement-2022

Direct taxes: rates and allowances 2022/23

5 Commons Library Research Briefing, 6 April 2022

National Insurance contributions

The rates of National Insurance contributions (NICs) for both employees and
employers are increased by 1.25 percentage points for 2022/23. For
employees, the rate of NICs is set at 13.25% on all earnings between the
primary threshold and the upper earnings limit, and at 3.25% on earnings
above the upper earnings limit. For employers, the rate of NICs is set at
15.05% on earnings above the secondary threshold.

The primary threshold is set initially at £190 per week, rising to £242 per
week from 6 July 2022. The secondary threshold is set at £175 per week for
the whole of the 2022/23 tax year. The upper earnings limit is set at £967
per week for 2022/23, so that it remains aligned with the income tax higher
rate threshold.

Further information

This paper deals with tax allowances, but not with cash benefits provided
under the social security system, the child tax credit or the working tax
credit. Details of these credits, along with other tax rates and allowances for
the 2022/23 year are set out in Annex A to HM Treasury, Overview of Tax
Legislation and Rates, October 2021 published alongside the Autumn 2021
Budget, supplemented by HM Treasury, Spring Statement 2022: Factsheet
on Personal Tax, 23 March 2022.

Direct taxes: rates and allowances 2022/23

6 Commons Library Research Briefing, 6 April 2022

1 Rates and thresholds

1.1 Income tax

Income from earnings, pensions, profits

All ‘non-savings’ income – income from earnings, pensions, taxable social
security benefits, trading profits and income from property – are subject to
income tax at the same rates.

For 2022/23 income tax on these categories of income is charged at three
rates: the basic rate of 20%, the higher rate of 40% and the additional rate of
45%. All three rates are unchanged from 2021/22.1

The 20% basic rate applies to taxable income up to a threshold of £37,700.
Taxable income excludes personal allowances, which represent the amount
of money someone may receive free of tax. (Personal allowances are
discussed in section 2 of this paper.)

Taxable income in excess of the threshold is charged at the higher rate of
40%, up to £150,000. Income earned above this threshold is charged tax at

2021/22 2022/23

Taxable income Tax rate Taxable income Tax rate

£0 – £37,700 20% £0 – £37,700 20%

£37,701 – £150,000 40% £37,701 – £150,000 40%

Over £150,000 45% Over £150,000 45%

A 10% starting rate of tax used to apply on non-savings income, but was
withdrawn in April 2008.

Two new allowances which apply to income from property and income from
trading were introduced from April 2017. Individuals with property income
or trading income below the level of the allowance do not need to declare
this income or pay tax on it. Both allowances are set at £1,000 for 2022/23.2

1 HM Treasury (HMT), Overview of Tax Legislation and Rates, October 2021 (Annex A)
2 HM Revenue & Customs (HMRC), Tax-free allowances on property and trading income, May 2019.

see also, Low Incomes Tax Reform Group (LITRG), What is the trading allowance?, 4 April 2022;

and, Renting out a property, 24 February 2022.

Direct taxes: rates and allowances 2022/23

7 Commons Library Research Briefing, 6 April 2022

Scottish taxpayers

From 2017/18 the Scottish Government has had the power to set all income
tax rates and thresholds to apply to Scottish taxpayers’ non-savings and non-
dividend income. It does not have the power to set the personal allowance.
For 2022/23 the Scottish Government has set five rates of income tax: the
starter rate of 19%; the basic rate of 20%; the intermediate rate of 21%; the
higher rate of 41%; and the top rate of 46%. It has also set the four
thresholds at which these rates take effect. These rates and thresholds are:3

Taxable income Tax rate

Over £12,570 – £14,732 19%

Over £14,732 – £25,688 20%

Over £25,688 – £43,662 21%

Over £43,662 – £150,000 41%

Above £150,000 46%

The table assumes someone is in receipt of the UK personal allowance, which is reduced by £1 for

every £2 earned over £100,000.

Savings and dividend income

For 2022/23 savings income – such as interest – is charged at 0% for income
up to £5,000. Above this limit savings income is charged tax at the basic rate
of 20%, up to the basic rate limit of £37,700. Savings income above this limit
is charged at the 40% higher rate, up to the higher rate limit of £150,000.
Savings income above this limit is charged at the 45% additional rate.

Since April 2016 savers have been entitled to claim a Personal Savings
Allowance (PSA). This applies a 0% rate for up to £1,000 of savings income
for basic rate taxpayers. The allowance applies a 0% rate for up to £500 of
savings income for higher rate taxpayers. Additional rate taxpayers are not
eligible for the allowance. Historically savings income has been taxed at
source by banks and building societies at 20%. Alongside the introduction of
the PSA, automatic deduction of tax at source was withdrawn.4

For 2022/23 dividend income is charged at 0% for income up to £2,000 – the
Dividend Allowance. Above this limit dividend income is charged tax at a
basic rate of 8.75%, up to the basic rate limit. Dividend income above this
limit is charged at a higher rate of 33.75%, up to the higher rate limit.
Dividend income above this limit is charged at an additional rate of 39.35%.
All three rates of tax on dividend income are increased by 1.25 percentage
points for 2022/23.

3 The Scottish Government publishes details of these rates and thresholds: Scottish Income Tax,

ret’d April 2022. See also, LITRG, How does Scottish income tax work?, 30 March 2022.
4 For more details see, HMRC, Tax on savings interest, ret’d April 2022

https://www.gov.scot/collections/scottish-income-tax/
https://www.litrg.org.uk/tax-guides/tax-basics/what-scottish-income-tax/how-does-scottish-income-tax-work
https://www.gov.uk/apply-tax-free-interest-on-savings

Direct taxes: rates and allowances 2022/23

8 Commons Library Research Briefing, 6 April 2022

In calculating tax liability, dividend and savings income are regarded as the
‘top slice’ of income, with dividends the highest.5

1.2 National Insurance contributions

National Insurance contributions (NICs) are paid by employees, employers
and the self-employed, and used to fund contributory benefits – primarily
the state pension. Entitlement to contributory benefits is based on
someone’s National Insurance payment record. 6

Class 1 NICs: employees and employers

Employees are liable to Class 1 (primary) National Insurance contributions
(NICs) on their earnings if they exceed the lower earnings limit (LEL). The LEL
is set at £123 per week for 2022/23. A zero rate of NICs is charged on
earnings between the LEL and the primary threshold (PT). A notional
primary Class NIC is deemed to have been paid in respect of earnings
between LEL and PT to protect benefit entitlement. For 2022/23 the PT is
set initially at £190 per week, but will rise to £242 a week from 6 July 2022
for the remainder of the tax year.

Earnings above the PT are charged NICs at a rate of 13.25%, subject to a cap
at the upper earnings limit (UEL), which is set at £967 per week. Earnings
above the UEL are charged NICs at a rate of 3.25%.

Prior to 6 April 2016 employees were charged a reduced rate of NICs if they
had contracted out of the state second pension (S2P). These arrangements
ended with the introduction of the ‘single-tier’ state pension, and the closure
of the additional state pension, from this date.7

Employers pay Class 1 (secondary) NICs on employee earnings at a rate of
15.05% on earnings above the secondary threshold (ST). The ST is set at £175
per week for 2022/23.

Class 1 NICs rates for employees and employers for 2022/23

Earningsa Employee Earnings Employer

£ per week NIC rate (per cent) £ per week NIC rate (per cent)

Below £123 (LEL) 0% Below £123 (LEL) 0%

£123 to £190/£242b (PT) 0% £123 to £175 (ST) 0%

£190/£242b to £967 (UEL) 13.25% Above £175 15.05%

Above £967 3.25%

5 See also, LITRG, Savings and tax, 23 February 2022
6 see, HMRC, What National Insurance is for, ret’d April 2022
7 The new State Pension: transitional issues, Commons Library briefing CBP7414, 25 February 2019.

https://www.litrg.org.uk/tax-guides/other-tax-issues/savings-and-tax
https://www.gov.uk/national-insurance/what-national-insurance-is-for
https://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-7414

Direct taxes: rates and allowances 2022/23

9 Commons Library Research Briefing, 6 April 2022

a LEL: lower earnings limit. PT: primary threshold. ST: secondary threshold. UEL: upper earnings limit.

b The PT is set at £190 from 6 April to 5 July 2022, and at £242 from 6 July to 5 April 2023. 8

The rates of NICs paid by both employees and employers are increased by
1.25 percentage points for 2022/23. This rate rise is the first part of a two-
stage process for the introduction of a new tax – the Health and Social Care
Levy – based on NICs. Further details are set out in the following box.

8 HMT, Overview of Tax Legislation and Rates, October 2021 (Annex A); Spring Statement 2022:

Factsheet on Personal Tax, 23 March 2022. These thresholds were set by Order (SI 2021/157), and

then amended by the National Insurance Contributions (Increase of Thresholds) Act 2022.

The Health and Social Care Levy

On 7 September 2021 the Prime Minister gave a statement to the House
announcing the introduction of a new tax: the Health and Social Care Levy, to
substantially increase funding for health and social care.

The Levy is forecast to raise between £12.4bn and £13bn a year for health
and social care over the next five years.1 The Levy is based on NICs, and will
be introduced in two stages:

• In 2022/23 the rate of primary Class 1 NICs for employees charged on
their earnings, the rate of secondary Class 1 NICs for employers charged
on their employees’ earnings, and the rate of Class 4 NICs for the self-
employed charged on their trading profits, will be increased by 1.25
percentage points.

• In 2023/24 a separate Levy set at 1.25% will be introduced, replacing the
temporary increase in NICs rates. Liability to the Levy will be extended to
individuals in employment who are over State Pension age. At present
pensioners are not liable to pay NICs on any earnings they receive from

employment.2

Statutory provision for the Levy is made by the Health and Social Care Levy

In the Autumn 2021 Budget the Chancellor announced that NI thresholds
would be increased in line with inflation for 2022/23. Provision for this was
made by the Social Security (Contributions) (Rates, Limits and Thresholds

Amendments and National Insurance Funds Payments) Regulations 2021 (SI
2021/157).

In his Spring Statement on 23 March 2020 the Chancellor confirmed that the
first stage of the Levy’s introduction would proceed, with the rise in Class 1
and Class 4 NICs rates from 6 April 2022.

https://www.gov.uk/government/publications/autumn-budget-2021-overview-of-tax-legislation-and-rates-ootlar/annex-a-rates-and-allowances
https://www.gov.uk/government/publications/autumn-budget-2021-overview-of-tax-legislation-and-rates-ootlar/annex-a-rates-and-allowances
https://www.gov.uk/government/publications/spring-statement-2022-factsheet-on-personal-tax
https://www.gov.uk/government/publications/spring-statement-2022-factsheet-on-personal-tax
https://www.legislation.gov.uk/uksi/2021/157/contents/made
https://www.legislation.gov.uk/ukpga/2022/16/contents/enacted
https://www.gov.uk/government/speeches/pm-statement-to-the-house-of-commons-on-health-and-social-care-7-september-2021
https://www.legislation.gov.uk/ukpga/2021/28/enacted
https://www.legislation.gov.uk/ukpga/2021/28/enacted
https://www.legislation.gov.uk/uksi/2021/157/contents/made
https://www.legislation.gov.uk/uksi/2021/157/contents/made
https://www.legislation.gov.uk/uksi/2021/157/contents/made
https://www.legislation.gov.uk/uksi/2021/157/contents/made

Direct taxes: rates and allowances 2022/23

10 Commons Library Research Briefing, 6 April 2022

The Chancellor also announced an increase in NI thresholds for the coming

year, to align the Primary Threshold (for employees) and the Lower Profits
Limit (for the self-employed) with the personal income tax allowance:

• The Primary Threshold is to be set at £190 a week from 6 April 2022,
and will rise to £242 a week from 6 July 2022. This is the earliest date
that will allow all payroll software developers and employers to update
their systems and implement changes. The threshold will be set at
£242 a week for 2023/24, aligned with the personal allowance at

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