April updates to statutory rates

April updates to statutory rates


29th March 2023

There have been several key announcements for HR practitioners to be aware of, including: a new minimum wage, increased statutory rates and limits, and the Spring 2023 Budget.

Annual rates increases

The usual annual updates to the statutory rates and limits will come into effect in early April. 

Here are the key changes:

Budget

On 15 March 2023, the Chancellor, Jeremy Hunt, delivered the UK government’s Budget. This follows the Autumn Statement in November 2022, which saw changes to employment taxes (see our coverage here).

While much of the Budget did not focus directly on employment issues, there were two key announcements that are relevant to employers.

Pensions

One of the big headlines of the Budget was the changes to pensions, intended to incentivise high earners to stay in work for longer. The concern underlying the changes is that many high-earners who are at or near the pensions lifetime allowance (the limit on contributions into a registered pension scheme before facing negative tax consequences) choose to retire early or drastically reduce working hours in order to avoid the negative tax consequences of exceeding the allowance.

From 6 April 2023 the following changes will apply:

  • The annual allowance for tax relief on savings into a registered pension scheme will increase from £40,000 to £60,000.
  • The adjusted income threshold at which the annual allowance begins to taper was increased to £260,000 per year, with the minimum tapered annual allowance increased from £4,000 to £10,000.
  • The lifetime allowance for tax relief on savings into a registered pension scheme (currently set at £1,073,100) will be abolished, allowing for high earners to put more into their pensions for longer.
  • The maximum tax-free lump sum on retirement will be capped at £268,275. Currently the cap is 25% of the total pension pot on retirement.

Employers who offer pension allowances for high earners may want to review those arrangements in light of these changes.

Expansion of free childcare for working parents

The other big story for employers in the Budget was the expansion of free childcare for working parents in England. Currently working parents who meet certain eligibility requirements are entitled to 30 hours of free childcare a week for children aged 3 or 4. Beginning in April 2024 and being rolled out in stages until September 2025, working parents may be entitled to up to 30 hours of free childcare for children under 5 from the age of 9 months. The changes are staggered as follows:

  • From April 2024: 15 hours of free childcare for eligible working parents will be available for children who are 2 years old.
  • From September 2024: 15 hours of free childcare for eligible working parents will be available for children over 9 months.
  • From September 2025: 30 hours of free childcare for eligible working parents will be available for all children under 5 from the age of 9 months.

In addition to the above, the Budget also confirmed that the rate of corporation tax will increase to 25% for businesses with profits of more than £250,000 from 6 April 2023.