Bush & Co information update

Health and Social Care Levy

From April 2022 the government will introduce a new 1.25% levy on both earned income and on employers' wage bills. This extra tax is to fund social care in England, and help the NHS recover after the pandemic.

Who does it Affect? We've reviewed the key points of the levy here:

  • 1.25% rise in National Insurance (Class 1 for employees and employers and Class 4 for the self-employed) from April 2022.
  • From April 2023 onwards, the levy will be separated from National Insurance and will be shown as a separate levy on earned income, with NI rates returning to their current level.
  • Tax rates on dividends will also increase by 1.25% in April 2022.

Impact on employees, the self-employed and employers (per employee):

PAYE / Trade profits

£20,000

£50,000

£100,000

Social Care Levy

£130

£505

£1,130

Cost per employee

£139

£514

£1,139

Impact on pensioners

Workers (employed and self-employed) above the state pension age currently do not suffer National Insurance on their earnings so are not impacted by the levy in the 2022/23 tax year. However, once the levy is separated from National Insurance in 2023/24, all workers will be subject to the additional 1.25% levy.

The impact in financial terms will follow the table above assuming thresholds remain unchanged.

Dividends for investors

The 1.25% increase to dividend tax rates applies to all dividends, not just owner managed companies. It will therefore impact investors the same way as those trading through their own company and drawing dividends.

The impact will be an extra £12.50 tax per £1,000 dividend income in excess of the current 0% dividend allowance of £2,000. There are currently no announced changes to the £2,000 dividend allowance.


Trust Registrations

HMRC has widened the scope of trusts that need to be registered with them on the central Trust Registration Service to include all trusts, whether they are liable to tax or not. Whilst the announced new rules came in October 2020, HMRC systems were not able to process the new registrations until recently but are now ready to do so.

There are a number of exclusions to the rules, but we suggest you get in touch with us as soon as possible if you are aware of a trust that might be affected by the new requirements.

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Residential Capital Gains Tax

Since 6 April 2020, it has been a requirement to report and pay any capital gains tax arising on the disposal of UK residential property within 30 days of completion. We have encountered a number of instances where sellers have not been made aware of the relatively new requirements in good time. Whilst HMRC have generally been slow to issue penalties in such cases, we expect this unofficial 'soft-landing' period to change soon and would urge you to get in touch if you have any past or pending sales of UK residential property that you may need to report.

Sale of your own home remains exempt (assuming it has always been your home and not used for any other purposes). You also do not need to report any gains using the 30 day service where no tax is payable, such as a gain below the annual exemption (currently £12,300 per individual) or if you have losses that cover the gain. These may still need to be included on your tax return however.

The 30 day return period is short so please get in touch with us at the earliest opportunity if you think you may need our help.

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Self Assessment Tax Return Reminder

We have received a number of our clients' self assessment records already and thank you to all those that have dealt with this in good time this year.

We would like to take this opportunity to remind you that we need your tax return records before 31 October 2021 to guarantee that we can complete it by the online filing deadline of 31 January 2022. We will endeavour to process the returns for records received after 31 October 2021 but cannot guarantee that they will be completed in time.

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Making Tax Digital (MTD)

At present, compulsory MTD only applies to VAT registered businesses with a taxable turnover above the £85,000 VAT registration threshold. This is due to extend to all VAT registered businesses from April 2022 (i.e. to include voluntarily registered businesses also).

MTD was due to be rolled out to most sole traders and those with rental properties from April 2023 however, in recognition of the challenges faced by many individuals and UK businesses as a result of the pandemic, HMRC have extended the roll out until April 2024.

As HMRC look towards the roll out of MTD to unincorporated businesses, they are proposing to transition all businesses to being taxed on the basis of the tax year (either a 31 March or 5 April year end) from the 2023/24 tax year onwards. This could see businesses that do not currently use a 31 March or 5 April year end having a 'bumper' tax and National Insurance liability in 2023/24 year. These additional profits would also be subject to the Social Care Levy. The proposal is still in the consultancy phase and may be extended a year in line with the MTD delay, but we will keep a close eye on developments.

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Corporate Matters & Upcoming Changes

Super deductions

Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery will benefit from new first year capital allowances. Under this measure a company will be allowed to claim either a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances or a first year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances. This relief is not available for unincorporated businesses

Corporation tax rates

The main rate of corporation tax is currently 19% and it will remain at that rate until 1 April 2023 when the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.

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Disclaimer

This update report is for guidance only, and professional advice should be obtained before acting on any information contained herein. No responsibility can be accepted by the publishers or the distributors for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.


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