When the Chancellor of the Exchequer announced business tax changes in the Spring Budget of this year, it may have offered some insights into how your business will be affected through 2022 and beyond.
And while it’s true that some previous budgetary measures have never fully been implemented, there’s no doubt that a great deal of change is coming. With this timeline of business tax changes so far this year (and some insights into the years ahead), you can prepare your company for the future, and set a plan of action to keep your business focused on achieving its goals.
March 2022
In the buildup to the end of the tax year, March brought some welcome cuts on fuel duty. The Chancellor of the Exchequer announced that petrol and diesel costs were cut by 5p a litre, which reduced overall government tax take to just 53p per litre. These reductions are set to remain in place for 12 months and were put into action on March 23rd.
SMEs had long called for the government to reduce fuel costs, as many companies had found themselves struggling to keep their tanks full due to a combination of increased minimum wage requirements and rising energy costs.
Considered to be the largest ever reduction in UK fuel duty, small businesses have been given a little more breathing room, while costing the country’s treasury in excess of £5 billion.
April 2022
April is always expected to be a busy month when it comes to business tax matters, and this year was no exception. Below are some of the most newsworthy tax changes that affected businesses as a whole.
Employment allowances for small businesses rose to £5,000. The Chancellor at the time reasoned this would help to alleviate the impact of the Health and Care levy for employers (also introduced at the same time).
The Heath and Social Care Levy in question led to a 1.25% increase in National Insurance for employers. This increase will remain in place for businesses until the levy becomes a completely separate tax in April of 2023.
The next phase of the government’s Making Tax Digital (MTD) for VAT scheme was applied to any businesses trading below the VAT registration threshold (currently listed as £85,000) for return periods from 1 April onwards. This continued evolution of VAT-registered digital records requires MTD-compatible software that’s recognised by the HMRC as capable of storing and transferring the online records of a business.
Alongside these announcements, the following business tax changes were also introduced:
- The lower profits limit for self-employed Class 4 National Insurance contribution payments rose to £11,908 respectively.
- Originally announced in September of 2021, the dividend income tax rate increase of 1.25% was put into effect.
- 2021’s announced 4% tax on businesses with profits above £25 million was also finally introduced for residential property developer tax.
- The 2021 Spring Budget’s announcement of tourism and hospitality VAT returning to the standard 20% rate (rising from the temporarily implemented 12.5%) was also put into place.
July 2022
The Spring Statement of 2022 saw the primary threshold of National Insurance Contributions from employees increase to £12,570. This announcement has brought NI contributions up to speed with the income tax personal allowance.
While these reductions are in reference to the earning threshold (currently £9,568 per year), any UK salaries above this amount (up to a maximum of £50,270) will be charged to Class 1 National Insurance Contributions (currently 12%), and paid monthly via deductions in payroll.
Self-employed Class 4 National Insurance Contributions will incur a relatively similar charge (paid through their annual self-assessment tax returns). However, their rate will be at 9%, as opposed to the 12% listed above.
In terms of businesses, these threshold changes in terms of National Insurance Contributions won’t apply to employers, as their contribution amount sits at £9,100.
In other highlights of July:
- The self-employed won’t report profit and pay any National Insurance Contributions on them until 2023. Their NIC will be determined on a split-year basis (at a threshold of £11,908).
- Self-employed people will pay a class 2 NIC at a fixed rate if their incoming profits go over these thresholds.
- This increase in thresholds will inevitably mean some businesses will no longer have to pay these contributions.
April 2023
The announcements of this year enable us to paint a more accurate picture of what 2023 and beyond will entail for businesses and the taxes that affect them most.
First of all, relief set up for retail, leisure, and hospitality businesses will come to an end, as 2021’s Autumn business rates multiplier ceases to be frozen at 50%. Whatsmore, although it was originally planned to end in December of 2021, the increase in Annual Investment Allowance to £1 million will be finally reduced to £200, 000.
In addition to the above, the following details (originally stated in the Spring 2021 Budget) will come to fruition.
- Corporation tax is expected to rise from 19% to 25%.
- The 50% first-year capital allowances initiative will come to an official end.
April 2024
As of April 6th 2024, any sole trader with £10,000 or above in sales will be officially brought into the Making Tax Digital for Income Tax Self Assessment (also known as the MTD ITSA).
What does this mean for your business as a sole trader? It means that you’ll be legally required to keep digital records and online returns (delivered quarterly) for HMRC.
