September Mini Budget Breakdown

On 23rd September 2022, Chancellor of the Exchequer, Kwasi Kwarteng, announced a new growth plan.

This blog will provide a breakdown of the changes announced by the Chancellor and how they will impact you and your business.

 

Income Tax

The basic rate of income tax is set to receive its first cut in 15 years, reducing from 20% to 19%. This means that less tax will be applied to your non-dividend and non-saving income. This cut had been previously pledged by Rishi Sunak in the Spring but has been brought forward from 2024 to 6th April 2023. The government are currently estimating the average basic rate tax payers will save £130 per year.

 

When the growth plan was first announced, the decision was been made to scrap the 45% Additional Rate, which would have seen those earning more than £150,000 per annum being  charged at the current Higher Rate of 40% from April 2023. This has since been reviewed and, on 3rd October, a U-turn on the removal was announced; the 45% rate will now stay in place.

 

The 20% rate will stay in place for Gift Aid until April 2027.

 

Corporation Tax

The rate of corporation tax was initially expected to rise for companies with profits over £250,000 from 19% to 25% from April 2023. This increase has now been scrapped, meaning all companies will be paying at the 19% rate. The government hopes that this will encourage business owners to invest more into their companies, further improving and diversifying the UK economy.

 

National Insurance

At the beginning of the current tax year, National Insurance rates saw a 1.25% increase with the introduction of the Health & Social Care Levy. This aimed to increase funding for the worst affected sectors of the COVID-19 pandemic. It has now been announced that the levy will be reversed from 6th November 2022, and the National insurance rate will return to 12%. Plans to introduce the levy as a separate tax in the next tax year have also been scrapped.

This change will be reflected by a blended National Insurance rate on Self Assessments upon submission to ensure that the correct contribution is made.

This change will reduce the National Insurance bills of companies, giving a potential for further investments.

Dividends

Dividend tax rates will also fall by 1.25% in the next tax year following the removal of the Health & Social Care Levy.

 

Annual Investment Allowance

The Annual Investment Allowance (AIA) available to claim is set to permanently be £1,000,000. Plans had previously been put in place to reduce this to the previous amount of £200,000 in March 2023. AIA allows you claim 100% tax relief on assets up to the set amount. By having this as the higher amount, businesses will be able to claim more relief, reducing their tax.

 

Stamp Duty

Significant cuts to Stamp Duty have been announced, and all have come into effect as of midnight on 23rd September. Stamp duty is a form of tax applied when documents are recognized, most commonly through the purchase of houses.

The Nil Rate Band has doubled, increasing from £125,000 to £250,000, allowing more people to buy homes without paying any stamp duty. It is expected to save the average buyer £2500.

First-time home buyers will not have to pay stamp duty up to £425,000 and can claim relief on properties up to £625,000.

 

Additional Changes

  • Universal Credit Claimants who earn less than 15 hours per week at the National Living Wage will be required to meet with a Work Coach to help increase their earnings. Their benefits could be reduced if these meetings are ignored. Extra support will be offered to jobseekers over 50.
  • New legislation will be implemented to decrease planning and building times for new roads and energy infrastructure.
  • Changes in regulations on private investments are set to allow more funding from pension funds. This is expected to boost economic growth and see a particular increase in science and technology investment.
  • Alcohol duty will be frozen for another year and is expected to be reviewed and modernised.

 

It is expected that in the coming weeks, like with all changes in government, further plans will be announced, tackling issues like the reduction of childcare costs and the housing supply, as well as a review on digital infrastructure.

 

If you have any concerns regarding these changes and how they could impact you and your business, do not hesitate to contact us. You can find our contact information here.

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Dividends and Income Tax Changes April 2022

Changes to Dividends

As the new tax year begins, many changes will be made to reflect the current economic climate of the United Kingdom. One such change that shall come into effect from the 6th of April 2022 is a 1.25% increase in the Income Tax rates applied to dividends.

What are Dividends?

Dividends are the payments made out to the shareholders of a company, such as directors and investors. The dividends will come from the remaining value after the Corporation Tax that is due is taken from the total profit for the period. Because of this, the total dividends issued must not exceed the company’s profits from the current, or previous, periods.

Paying Dividends

The amount that each shareholder will be paid is dependent on the number of shares in the company that they hold. The dividends they receive will be proportional to their shares.

For dividends to be paid, a directors’ meeting must be held to the payment to be declared, even if the company only has one director, and a dividend voucher must be completed. The dividend voucher will include the date, the company name, the shareholder’s name, and the amount of dividend they will be paid. Dividends are usually paid quarterly but can also be paid in other installments such as annually or bi-annually.

Many companies will choose to pay their directors through a mix of both salary and dividends. This is because National Insurance contributions are not deducted from dividends; they are more tax efficient.

The New Income Tax Rates

The rise in Income Tax is being introduced as a part of a government scheme to increase funding for the health and social care sector, after it was hit hard by the pandemic over the last two years. Please view the table below to see how your tax rate will be impacted by the increase:

Tax Brackets Thresholds (£)

 

 Dividend Tax Rate
2021/22 2022/23
Personal Allowance

(If no other income)

 0 – 12,570 0% 0%
Basic-Rate 12,571 – 50,270 7.5% 8.75%
Higher-Rate 50,271 – 150,000 32.5% 33.75%
Additional-Rate Exceeding 150,000 38.1% 39.35%

The £2,000 dividends allowance introduced in April 2018 will still be available, meaning that any dividends within that amount will not be subjected to any tax deductions.

The government have predicted that the average loss that will be suffered because of the increase will be around £335 for those affected but has stated more than 50% of shareholders may not even need to pay any Income Tax on their dividends as they fall within the personal allowance or dividend allowance thresholds.

 

If you are interested in learning about the other changes brought in with the new tax year, please refer to our previous blog.

If you require assistance or any further information about how your dividends may be affected, please do not hesitate to contact us.

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Changes From April 2022

With the new tax year comes several changes brought forward by HMRC. Here is a short guide to help you navigate the updates that may affect you and your business from April 2022.

 

Reduced VAT is Ending

The reduced VAT rate of 12.5% will be increasing back to its pre-COVID rate of 20%. The reduced rate was initially introduced in July 2020 at 5%, rising to 12.5% in October 2021, to help businesses within the hospitality sector to help with their finances after the drastic impact of the Coronavirus pandemic on their trade. This return follows the timeline set in the Spring 2021 budget.

VAT Surcharges

The changes to penalties and interest rules which were due to come in place from April 2022 has now been delayed to January 2023

Making Tax Digital

Making Tax Digital (MTD) will apply to all VAT-registered businesses from 1st April 2022. This means that, for any VAT periods starting on or after this date, VAT registered businesses must keep all of their VAT records digitally and submit VAT returns using software that is MTD accordant.

Changes to National Insurance

National Insurance (NI) is going to increase by 1.25% from 1st April 2022. Those receiving a State Pension will also receive a levy of 1.25%. This increase in tax will be in place until 31st March 2023 and has been put in place to help contribute to increased health and social care costs incurred over the pandemic.

New PAYE Thresholds

From year 2022-2023 to tax year 2025-2026, the personal allowance will be £12,570 per year

In England, Wales, and Northern Ireland the basic tax rate of 20% will be applied to annual earnings above the threshold, up to £37,700 a year. The higher tax rate will be 40% on annual earnings between £37,701and £150,000, with the additional tax rate of 45% will be applied to earnings above this.

In Scotland, their starter tax rate of 19% applies to earnings above the threshold and up to £2,162, the basic rate of 20% applies to annual earnings between £2,163 and £13,118, and the intermediate rate of 21% applies to annual earnings between £13,119 to £31,092. Scotland’s higher rate of 41% applies to annual earnings between £31,093 and £150,000, and the top rate applied to earning above this is 46%.

Increase on Statutory payments

Statutory maternity pay (SMP), Statutory paternity pay (SSP), Statutory parental pay (SPP), Statutory adoption pay (SAP) and bereavement pay will change on April 2022. All will see the weekly rate of statutory pay increase from £151.97 to £156.66 per week.

From 6th April 2022, the rate of statutory sick pay (SSP) will also increase from £96.35 to £99.35 per week.

Any employee who earns more than (or equal to) the lower earnings limit, that will increase to £123 on the same date, is entitled to statutory pay.

 

Please do not hesitate to contact us regarding any of the above changes and how they may impact your business

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