3 things to know about the new tax year

Andy Gibbs ATT CTA is Head of Group Technical at TaxAssist Accountants, who is a qualified Chartered Tax Adviser (CTA) and holds the STEP Advanced Certificate in Trust and Estate Accounting. He has dealt with both tax compliance and tax advisory projects across a range of industry sectors.

With the start of a new tax year, there are some important changes that businesses should be aware of. We look at three of the main ones to consider:

1. National insurance rates
2. Dividend rates
3. Frozen tax rates

National insurance rates

One of the biggest changes is to national insurance, whose rates are increased by 1.25% from April 2022 to pay for the new government health and social care levy. This new levy will see employees, employers and the self-employed facing increased national insurance charges.

Eventually, the levy will be shown separately but will initially be funded through the national insurance system.

In the Spring Statement, the government announced a tweak to the rules, which will see the Primary Threshold and Lower Profits Limit of national insurance increased so they are in line with the income tax personal allowance of £12,570.

The way these rates have been harmonised is complicated, with different annual rates applying for employees compared to directors and the self-employed. For more details, see the HMRC rates page here.

The Employment Allowance (EA) allows eligible businesses to potentially reduce their employer national insurance liability and is increased to £5,000 in 2022/23.

The national minimum wage also increases as follows from 1st April 2022:

What does this mean for my business?

Businesses need to plan for these payroll cost increases and make sure they factor these employee charges into their business plans. Businesses owners should make sure they claim the EA if eligible and ensure the salary they draw from the business is done tax efficiently.

Make sure you pay the correct salary to your employees as sanctions and penalties can be applied for failure to stick to the rules.

Dividend rates

From April 2022, dividend tax rates are also increased by 1.25%, to pay for the new social care levy.

The dividend (nil rate) allowance remains at £2,000.

What does this mean for my business?

Owner managers need to factor this 1.25% increase in tax into their tax planning and budgeting.

Frozen tax rates

In 2022/23 many tax thresholds and allowances are frozen:

• The personal allowance from income tax (£12,570)
• The Capital Gains Tax Annual Exemption (£12,300)
• The lifetime pension allowance (£1,073,100)
• The pension annual allowance (£40,000)
• The inheritance tax threshold (£325,000)

What does this mean for my business?

When tax bands and thresholds are frozen, inflation will push more and more people into higher rates of tax.

Careful review of your personal and business finances is critical to ensure you are tax efficient and have budgeted for higher tax bills.

It should be noted that the above information is intended to inform rather than advise and is based on legislation and practice at the time of publication. Taxpayers’ circumstances do vary, and individuals and businesses should consider taking professional advice before taking action.

TaxAssist Accountants is the UK’s largest network providing tax advice and accountancy services specifically for sole traders, partnerships, limited companies and personal taxpayers. With more than 410 TaxAssist Accountants offices nationwide, the network provides accountancy services, tax returns, payroll, bookkeeping, tax savings and tax advice to 83,000 clients. Visit www.taxassist.co.uk for more information.

04/04/22: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.