NEWS


NHS/Care: National Insurance and Dividend Tax increases

From April 2022, to help pay for the NHS and fund community long-term care, the Government increased the rate of National Insurance Contributions (NIC) and the rate of tax applied to dividend income. However, the Government has now confirmed that this will only be a temporary measure which will end on 6th November 2022, with NIC rates reverting back to pre-increase levels. 

NIC: Whilst the increase is in force the earnings related NIC rates, and so Class 1 for employees and Class 4 for the self-employed, increase by 1.25%. Of note is that employees or self-employed individuals who are currently age exempt from NIC (state pension age and above) will also be charged the 1.25% NIC rate. The 1.25% uplift will also be applied to employers' NIC.

Dividends: During the same increase period the identical percentage charge will added to the tax payable on dividend income. This means that during the period of uplift a basic rate taxpayer in receipt of divided income above the initial £2,000 threshold pays 8.75% on that income instead of 7.5% as currently. 


MTD ('Making Tax Digital')

The introduction of the Government's flagship MTD tax system started on 1st April 2019 in respect of VAT compliance, but only for businesses with an annual turnover of £85000 and above; VAT registered entities below that threshold must enter MTD from 1st April 2022.

However, aside from VAT, the core thinking behind MTD is that income tax matters will be dealt with online and so in due course all businesses and larger landlords will have to keep digital details of their income and their costs (by expenses type) and submit these details to HMRC on a quarterly basis. After several postponements the planned start date for this 'full' income tax related version of MTD was to be 1st April 2023. However, the Government has recently revisited the situation and has decided to defer once more, the intended implementation date for MTD now being 1st April 2024

Please see our 'MTD' page for full details or access it by clicking here.


Personal Allowance and the Tax Rates

Personal Allowance: It is the Government's intention for the annual Personal Allowance to remain at £12,570 until 2025/26.

Basic Rate Tax:  For some years this has been set at 20% although with effect from 6th April 2023 the Government intend to reduce this to 19%.

In normal circumstances this currently means that the first £37,700 of income above the personal allowance will be subject to basic rate tax.

Higher Rate Tax: This remains at 40% and w.e.f. 6th April 2023 becomes the highest rate of personal income tax applicable.

Additional Rate Tax: The starting point at which additional rate tax of 45% comes into play is currently at an assessable income level of £150,000 per annum. This additional rate is to be scrapped, the last year in which it will relevant being 2022/23.


Dividends

Annual dividend income above £2,000 will potentially suffer a tax charge which is dependent upon the taxpayer's personal tax rate (e.g. 7.5% for basic rate payers, 32.5% for higher rate payers). Please also refer to our note above about an additional 'NHS/Care' related rate increase.


£1000 Trading Allowance / £1000 Property Income Allowance

In essence the respectively allowance can be claimed against business income or property income in lieu of claiming the actual associated costs. Should income be less than £1000 then the allowance must be restricted accordingly as it is not allowed to exceed income - i.e. both of these allowances can not be used to create a loss.


Corporation Tax

In respect of companies generating an annual profit of £250,000 or more the current uniform corporation tax rate of 19% was to increased in April 2023 to 25%. However, the Government announced in their September 2022 Mini-Budget that this planned increase is to be cancelled, the tax rate for all companies therefore remaining at 19%.


£5,000 Employment Allowance

For 2022/23 and the annual Employment Allowance has been increased to £5,000. Therefore, dependent upon certain conditions, most small employers will be able to recoup the first £5,000 of their Employers' National Insurance Contributions for the tax year in question (including the increased portion that is specific to NHS / long-term care funding). However, year to year 'carry over' of any unused allowance is no longer be permitted, and any business paying annual employer's NIC of over £100,000 will not qualify for the allowance. 


Off-Payroll Working (IR35)

The current rules, which in essence require the 'payer' to determine the employment of the entities they are paying, will change drastically with effect from 6th April 2023.

At that time the entity carrying out the work will be responsible for deciding their own employment status.

The current rules have been seen by many as convoluted, mis-understood and in many instances, unworkable. Therefore this change effectively reverts back to the situation that was in place prior to the current rules being introduced.


VAT Reverse Charge for the Construction Industry

To help counter fraudulent use of the VAT system the Government has introduced new VAT rules for the construction industry known as the Domestic Reverse Charge rules or DRC for short; in this instance 'domestic' refers to the UK, not residential related works.

In simple very terms the DRC rules mean that a VAT registered CIS subcontractor will no longer add VAT to their invoice when they issue it to their contractor; should there be further tiers of subcontractors / contractors then the process will repeat up the line until the end user is eventually billed, at which point the appropriate VAT will be charged as normal.


Sale of Residential Property - Capital Gains Tax changes

In respect of a residential property sale/disposal, other than when it has been 100% someone's principle private residence, HMRC's disclosure rules have changed.

Previously, the associated capital gains disclosures were submitted to HMRC as part and parcel of that tax year's Tax Return, with any capital gains tax (CGT) being remitted with usual Self Assessment tax - usually at the end of the following January. However the new rules require the necessary disclosures to be made online to HMRC within 60 days of the disposal date, usually the completion date, and all related CGT must be paid to HMRC within that same time scale. 

Due to the relatively short timing involved it means that considered estimates may have to be used in respect of certain figures, not least of which may be an estimate of the applicable tax rate payable (the latter is dependent upon the overall level taxable income received, which may not become apparent until the end of the tax year in question). As a result the CGT disclosures will still need to be subsequently entered onto the relevant annual Tax Return; by that time it is assumed that 'actual' figures will be available, and so those details will then take precedent over what was submitted previously to HMRC. If necessary, the liability will then be adjusted either up or down so as to match to the final calculations.

Penalties will be applied if submissions are made after the statuary 60 day period and this also applies to late payment of the related tax.


P11Ds

Subject to some important conditions, certain trivial reimbursements to employees and directors can now be ignored from the benefits in kind regime.






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