An awful lot has happened since the last Budget in October 2021, so we thought we would take another look at some of the key points that will impact on law firms in 2022/23.
1. National insurance/health and social care levy
The Budget confirmed that a 'health and social care' levy will be introduced from April 2022, resulting in a 1.25% temporary increase in both the main and additional
rates of Class 1, Class 1A, Class 1B and Class 4 national insurance contributions.
From April 2023, the rates will be reduced back to current levels and a new 1.25% health and social care levy will be introduced. The new levy will also be payable by individuals above the state pension age.
| Class |
Threshold |
Current rate |
New rate |
Class 1
(primary) |
Main rate |
12% |
13.5% |
| |
Additional rate |
2% |
3.5% |
Class 1
(secondary) |
|
13.8% |
15.05% |
| Class 1A |
|
13.8% |
15.05% |
| Class 1B |
|
13.8% |
15.05% |
| Class 4 |
Main rate |
9% |
10.25% |
| |
Additional rate |
2% |
3.25% |
2. Corporation tax
With effect from April 2023, the rate of corporation tax is set to increase to 25% for companies with annual profits over £250,000. Companies with profits below £50,000 will continue to pay the current rate of 19% and companies alling somewhere between the two will pay corporation tax at the main rate of 25%, less a deduction for marginal relief. The closer the company is to profits of £250,000, the closer to 25% they will pay and vice versa.
3. Annual investment allowance (AIA)
The AIA allows firms to deduct the total amount of qualifying expenditure from their taxable profits in a given tax year. It is available to all sole practitioners, partnerships, LLPs and limited companies, but not mixed partnerships (partnerships comprising both individuals and companies) or trustees.
Qualifying expenditure includes spend on assets such as computer equipment, furniture and integral features (assets that are part of a building used for business
purposes).
Originally set to reduce to £200,000, the AIA has been held at £1million until 31 March 2023.
4. Super deduction
First announced in Spring 2021, the 'super deduction' gives companies additional tax relief when purchasing capital assets. The super deduction allows companies an increased rate of 130% on certain plant and machinery (including computer equipment and office furniture) and 50% on special rate pool assets (e.g. integral features such as lighting and heating systems) on expenditure between 1 April 2021 and 31 March 2023.