Spring 2022 tax and NI update

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A Summary of changes to UK tax and NI rates and thresholds from April 2022

Employers and Employees

Minimum and living wage rates increase from 1st April 2022

23 and over 21 to 22 18 to 20 Under 18 Apprentice
April 2021 (current rate) £8.91 £8.36 £6.56 £4.62 £4.30
April 2022 £9.50 £9.18 £6.83 £4.81 £4.81

 

The Employment Allowance will increase

From April 2022 the employment allowance, which reduces employer’s national insurance contributions for certain employers, will increase to £5,000.  Employer’s NIC rates and thresholds remain unchanged.

The planned increase to National Insurance rates will go ahead

The rate of National Insurance will increase by 1.25 percentage points between 6th April 2022 and 5th April 2023.   After 5th April 2023, the increase will be replaced by a separate Health and Social Care Levy.

Class 1 and Class 4 National Insurance thresholds will increase

From July 2022, the threshold at which employees start paying Class 1 National Insurance contributions – which is currently £9,569 and will rise to £9,880 in April 2022 – will increase again to £12,570. This means that employees won’t have to start paying National Insurance until they have earned a minimum of £12,570 in a single tax year, though there may be special arrangements for the 2022/23 tax year.

As NIC is paid according to the pay period, and is not cumulative, only nine months of earnings (from July 2022 to March 2023) will benefit from the higher PT.

Sole Traders and Self-employed

Class 4 NIC

The threshold for Class 4 National Insurance contributions – which self-employed people pay on their profits – will also increase from July 2022. Currently £9,569 and £9,880 from April 2022, the threshold will increase again in July to £12,570.

The class 2 small profits threshold (SPT) will remain in place from April 2022, but the individual will not be liable to pay class 2 NIC until their profits exceed the lower profits threshold for the tax year, which is aligned with the lower profits threshold for class 4 NIC.

Tax year Flat rate per week Small profits threshold Lower profits limit
2022/23 £3.15 £6,725 £11,908*
2023/24 TBA TBA £12,570

*effective limit for the year with the first 13 months at £9,880 and the remainder from July at £12,570.

New class 2 NI credit 

Where the individual has annual profits between the SPT and the LPL, they will effectively build up a NI credit for that year, while paying zero class 2 NIC. Note that the taxpayer has to make profits at least equal to the SPT for the year in order to benefit from this class 2 NI credit.

In order to receive the class 2 NI credit the taxpayer will have to submit a tax return, although if they have no other income in the year they will have no tax to pay.

The introduction of the class 2 NI credit does not eliminate the need for voluntary class 2 NIC payments. Where the trading profits are less than the SPT the individual may still wish to pay voluntary class 2 NIC in order to maintain their contribution record and qualify for the state pension, as well as for other contributory benefits.

 

Class 2 National Insurance rules will change 

From April 2022, sole traders whose annual profits fall between the Small Profits Threshold and the Lower Profits Limit will be able to claim that year as a qualifying year for contributions towards the State Pension and other benefits, without paying Class 2 National Insurance.

The Small Profits Threshold is currently £6,515 and will rise to £6,725 on 6th April 2022. The Lower Profits Limit is currently £9,569. It will rise to £9,880 on 6th April 2022 and will increase again in July 2022 to £12,570.

Personal Income Tax

The basic rate of Income Tax will decrease

In April 2024, the basic rate of Income Tax in England, Wales and Northern Ireland will decrease from 20% to 19%. It’s not yet known whether any equivalent change in Scotland, where rates are set by the Scottish government, will be introduced.

Dividend tax will increase by 1.25 percentage points in 2022.  The new dividend tax rates for 2022/23 tax year (factoring in the 1.25 point rise) are: 8.75% (basic), 33.75% (higher) and 39.35% (additional).

Corporation Tax

Further news on capital allowances is expected in the Autumn Budget

The Annual Investment Allowance will remain at £1 million until March 2023. The Chancellor indicated that more news on the UK’s capital allowances regime can be expected in the Autumn Budget later this year.

This is just a brief summary of changes, please get in touch if you’d like assistance with your tax returns or employee payrolls. You can read the Spring Statement 2022 in full on the government’s website.

 

 

 

Business mileage expenses – why, what, how?

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Business mileage expenses explained

It’s very simple to record, can save you tax, and contributes to an accurate set of accounts and tax return.  So why do I meet so many people who don’t do it?

What is business mileage?

Any journey you make solely for the purpose of business. Examples include travelling to visit customers, suppliers, to attend work-related training events and business banking.   It does not include commuting to your normal place of work.  If you drop off the business post on the way home from your office, you can’t count that as a business trip.

Why record business mileage?

Keeping sufficient financial records is a legal obligation. The benefit to you is in claiming this tax free expense.  Say you travel an average of 20 business miles per day, 4 days per week, 48 weeks per year.  At 45p per mile that could save you £345 per year in tax at the current basic rate.  So what’s stopping you?

It’s a choreBusiness mileage

Well, I can’t argue with that.  It’s not much fun, but it really doesn’t take long and quickly becomes a habit you’ll barely notice.  All you need to do is keep a notebook and pen in the vehicle you use for business, or use your smartphone.

I haven’t got time

10 seconds spent jotting down the details at the end of the trip and it’s done.  You can link several business trips together. So if you start at your business premises one day and travel to a customer’s premises, then go to a 2nd customer, then onto the stationers to pick up some flyers you’ve had printed, and drop off the flyers at the distribution company, that can all be recorded as one trip.

I forget

I believe you.  I also know you’re doing your best to run a successful business, often under very difficult circumstances.  So find a way to integrate the recording of business mileage into your daily or weekly routine.

Give me an easy solution

There are 2 options for tracking mileage.  You can use the old paper and pen method, or use one of the many apps that are available now.

For each trip your paper record needs to show:

  • The date

    business mileage
    Mileage record made simple
  • details of where you’re going to and from
  • the reason for the trip and
  • the business mileage.

There are mobile apps which are appropriate for UK taxpayers Most will deal with more than just mileage. Try Concur,  Eclipsecs, Webexpenses or search for an app that will record mileage.

A note on the value of your business mileage expense claims: there is more than one method of calculating mileage expenses, although there are certain restrictions.  Have a chat with your accountant or contact us to find out which is best for you.

 

 

 

Budget 2013

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The Budget 2013 introduced a new National Insurance for employers. The increase in personal allowance to £10,000 has been brought forward a year, to 2014. There will be very few changes to tax rates.

Employer’s NI (National Insurance) Contributions 

A completely new measure introduced in this budget is the employment allowance.  This will be a deduction in employer’s NIC of £2,000 per year for all businesses and charities from April 2014. It is intended that this will be easy to administer, and the Government will be consulting with stakeholders on the practical aspects. It should be easy to administer, and be done through the normal payroll and RTI (Real Time Information) reporting process.

Currently employer’s NI contributions reduce profit and business tax liability.  If all else is equal, employers will pay £400 more tax (at a rate of 20%). So the true saving for many employers will be £1,600.

Income Tax

The increase in the personal allowance to £10,000 is being introduced a year earlier than anticipated and will come in from April next year. When there is a rise in the personal allowance this usually means the Chancellor lowers the threshold for the higher rate of tax, so that it only benefits people on lower incomes. There have been no changes to income tax rates.

The basic personal allowance is available to people born on or after 6 April 1948. In the current year, 2012/13, it is £8,105; in 2013/14 (as previously announced) it will be £9,440. Once the personal allowance has reached £10,000 in 2014/15, it will then increase in line with inflation based on the Consumer Prices Index (CPI) in future years, starting from 2015/16.

VAT

The annual turnover threshold for VAT registration will go up from £77,000 to £79,000 from April 2013. The deregistration turnover limit will go up from £75,000 to £77,000.

Corporation Tax

The main rate of corporation tax is already scheduled to decrease to 23% from 1 April 2013. From April 2014 it will go down to 21%, and from April 2015 to 20%. There is no change to the rate for small companies, which remains at 20%.

Capital gains tax

The annual exempt amount in 2013/14 will be £10,900, increased from £10,600 in 2012/13. The exemption for most trustees will be £5,450.  There are no changes to capital gains tax (CGT) rates.

Small Company Shareholder/Directors’ Loans

The Government will close three loopholes to counter attempts to avoid the tax charge on loans from close companies to individuals with a share or interest in the company. The measures will have effect from 20 March 2013 and are expected to bring in just under £70m annually in the four years beginning 2014/15.

Later this year the Government will consult on the structure and operation of the tax charge on loans from close companies to their participators (shareholders). If legislation is needed it will be in the Finance Bill 2014.

The full Budget can be accessed at hm-treasury.gov.uk

If you would like any help with budget 2013 changes please contact us.

RTI, pension auto-enrolment and minimum wage 2012

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RTI. Auto-enrolment to pension schemes.  An increase to the minimum wage.

There have been a few changes in the news recently. The important ones for employers are the changes to national minimum wage, the introduction of RTI reporting, and the introduction of automatic enrollment of workers to pension schemes.

National Minimum Wage

From 1st October 2012 the minimum wage rates are:

  • £6.19 an hour for workers aged 21 and over (an increase of 11p)
  • £4.98 an hour for workers aged 18-20
  • £3.68 an hour for workers aged below 18 who are no longer of compulsory school age
  • £2.65 per hour for apprentices under 19, and 19 or over in their first year of apprenticeship

Payroll changes – RTI

HM Revenue and Customs (HMRC) is changing the way employers report tax and national insurance (NIC) liability.  Currently, you (or your payroll provider), calculate tax and NIC on a regular basis. You pay your employees their net wage or salary. You then pay the tax and NIC to HMRC monthly or quarterly.  At the end of the tax year, a P35 report is filed with HMRC.  The P35 confirms the amounts of tax each employee has paid, and the total tax and NIC deducted and paid to HMRC by the employer.

Under the new system – RTI (real time information) employers send a report to HMRC when every payroll run is completed.   Each report will contain employees’ personal and payment details.  So there will no longer be a year-end return to file.  HMRC will no longer require P46s and P45s to be filed, but you will still need the same information from starters and must give P45 information to leavers.

To prepare for the change you’ll need to make sure your software can file RTI reports, and check that all of your employee details are accurate.  If you use a payroll provider, or bureau, they should handle the change for you.

The payroll software that we use is fully compliant with the new regime, so clients can expect to see little difference in the work they need to do.

More information is on HM Revenue and Customs website, or please contact us for help with your payroll.

Pension Auto-enrolment

The introduction of compulsory pension schemes for jobholders has been in the news recently.  Currently only large companies must make sure all eligible workers are enrolled onto a qualifying pension scheme.  It will be extended to all employers by 2017.

Employers will have to deduct a proportion of the jobholder’s pay, and make an additional employer contribution.

The dates from which employers must start (the staging date), depend on the number of employees you have and your PAYE reference.  More information what you need to do, when you’ll need to do it, and what you must not do, can be found on the Pensions Regulator website:

When the time comes to set up your scheme, please talk to an independent financial advisor to find the most cost effective scheme for you and your workers.  If you would like help in finding a good financial advisor please contact us.