News


National Insurance and dividend 1.25% uplift underway

The Government has at last increased National Insurance (NI) and dividend tax by 1.25 percentage points after months of anticipation.

The 1.25% uplift came into effect on 6 April 2022 and will apply until April 2023, after which a separate health and social care levy will apply on peoples’ income at 1.25%.

The Government said it expects the levy to raise £39 billion over the next three years to help reduce the Covid-induced NHS backlog and reform adult social care.

The change means employees will pay NI at 13.25% on their earnings above the primary threshold up to £50,270 a year and 3.25% of earnings above that in 2022/23.

Some employees are exempt from the uprate in certain circumstances, including apprentices under 25 years old, employees under 21 years old, armed forces veterans and freeport employees.

Employers will pay 15.05% on earnings above £9,100 and the self-employed will pay 10.25% above £11,908.

Some have criticised the Government for going ahead with the plan it first announced in September 2021, saying it is mistimed with the current cost of living crisis as inflation runs at 6.2%.

However, from July 2022, the point at which individuals pay NI will rise by £2,690 to £12,570 – equal to the income tax personal allowance.

The Government said this means around 70% of taxpayers will end up paying less in NI even when taking into account the 1.25% uplift.

However, Torsten Bell, chief executive of the Resolution Foundation, said lower earners will not benefit as much as others, commenting:

“Middle and higher income households will gain most from the rise in the National Insurance threshold, but only £1 in every £3 of additional support announced today will go to the bottom half of the income distribution.”

Talk to us about your tax liability.

New law to resolve Covid rent debt

The Government has set up an arbitration system to help resolve outstanding commercial rent debts as the general moratorium on commercial eviction ends.

From 25 March, a legally binding arbitration process is available for eligible landlords and tenants who have not yet reached an agreement.

The Government hopes this will resolve disputes about pandemic-related rent debt and help the market return to normal.

The law applies to commercial rent debts of businesses that were mandated to close under Covid lockdowns and restrictions in part or in full from March 2020 until the date restrictions ended for their sector.

During the pandemic, commercial tenants received a moratorium on evictions, which ended on 24 March 2022 in England and Wales.

However, eligible businesses remain protected for the next six months, during which time arbitration can be applied for.

IR35 reform landing period ends

Penalties now apply to businesses that make mistakes under new IR35 rules for the private sector.

The Government extended the off-payroll working rules reform to the private sector in April 2021, but promised to be lenient on mistakes in the first year.

The landing period has now ended, so employers caught within the reformed IR35 rules will have to pay a penalty of their unpaid tax between 30-100%.

Introduced in 2000, IR35 was designed to prevent tax avoidance by contractors who supply their services via intermediaries in a way so they enjoy the benefits of ‘employment’ and a lower tax rate than actual payrolled employees.

Known as ‘disguised employment’, this loophole was costing the Government millions of pounds in lost taxes each year.

Recent updates made the hirer, rather than the contractor, responsible for designating employment status and rolled out the new rules from just public sector businesses to medium and large private businesses.

The importance of estate planning

We are all somewhat used to living with economic doom and gloom at present, from sky-high inflation rates to tax rises being splashed across the news headlines. But recent analysis from the Office of Budget Responsibility shows that you may also get stung harder after you are gone.

They estimate that HMRC inheritance tax takings are set to rise to £37 billion cumulatively over the next five years. That’s compared to £26.7bn for the previous five years to and including the 2021/22 tax year. The rise will be driven by inflation, and the freezing of the thresholds at which inheritance tax becomes payable.

This means that more people, and more of their wealth, get drawn into the scope of inheritance tax.

The good news is there are numerous planning strategies for managing inheritance tax liability. With a little savvy planning, many people are able to take themselves out of its scope completely, or at the very least reduce its impact significantly.

A new approach to employee benefits

Balancing tax perks with desirability.

Like most business owners, you have probably experienced the squeeze in recruitment and retention that has been prevalent for the last 12 months or so. It’s been so significant, it has even been dubbed “The Great Resignation”.

According to research from Ipsos, 26% of British workers have thought about quitting their job in the last three months, while 29% have looked for another one. This is an alarming thought when you are trying to run a business, grow, look after customers, and ensure those staff staying do not become overwhelmed.

It would be alright if you had the seemingly unlimited coffers of businesses like Google or Facebook. But the reality for most business owners is that you’ll be looking to invest smartly, rather than extravagantly.

And that’s where employee benefits come in. They allow you to stand out as an employer, without simply throwing money into ever-higher salaries.

A well-designed employee benefits scheme can offer a suite of highly desirable perks without sending you into the red. They could be the difference between a star candidate choosing you over another firm, or dissuading current employees from jumping ship.

Moreover, some carry valuable tax advantages to sweeten the deal further for employees and the business.

What is the tax treatment of employee benefits?

If a benefit is paid in cash, it is usually treated in the same way as salary. In other words, the employee pays income tax and national insurance on it, and you pay employer’s national insurance. This could be directly through PAYE, or as a benefit in kind.

Commissions and bonuses are simple examples of this, but the principle also applies to attractive non-cash perks which can be readily converted into cash.

Company cars which are available for private or family use also fall within the taxable benefit regime, the value taxed determined to a large extent by the emissions of the vehicle.

And then there are tax-efficient benefits. These will probably be your first port of call as they offer enhanced value through a tax saving and are often desirable in their own right. We’ll highlight a few, and outline the specific qualifying rules to ensure they qualify for the tax benefit.

Trivial gifts

The trivial gift rules are a great way to convey some personality in your business and show your team you care. You are permitted to give gifts of up to £50 per gift per employee, but they must be for a non-work reason – so not as a reward for good performance, for instance, and it cannot be cash or a cash voucher.

While this may appear restrictive at first glance, it opens up a great opportunity to offer a birthday gift to each employee, or mark special occasions like marriage or the birth of a child. Note that directors and members of their households are limited by a £300 annual cap.

Parties

On a similar theme, there is a separate tax perk for throwing work parties. You are permitted to spend up to £150 (including VAT) per employee per year, and another £150 on their partners.

To qualify, every employee must be entitled to go, and there must be an annual element to it, like a Christmas celebration or a summer barbeque. You can spread the allowance over multiple events as long as they stay under the £150 limit, or you can hold different events for different departments, as long as each member of staff can attend one of them.

If you go beyond the £150 per head limit, you will have certain National Insurance and reporting obligations.

As with the trivial gift allowance, you can really make this show the personality and generosity of your business, and perhaps gain some team-building benefits.

Cycle to work scheme

The cycle to work scheme is another great tax-efficient perk. As well as saving your business and employees tax, it ticks boxes for being green, promoting health and well-being and is super tangible to your employees.

Simply put, you register with the scheme and then make an interest-free loan to your employees for the purchase of the bike and related equipment. They repay that loan to you through a salary sacrifice arrangement, which means they save income tax and national insurance, and you save employer national insurance.

There may be a small final fee for the employee, but overall they should save somewhere between 26% to 29%  on the value of the bike through the tax breaks if they are lower rate taxpayers. Higher rate taxpayers can expect to save between 35% and 40%.

Other tax-efficient perks

The schemes we have highlighted are just a flavour of the tax breaks available for employee benefits. Other ideas include job-related training costs, death-in-service benefits, mobile phones, childcare and, of course, pensions – which each have their own rules.

But we must not overlook some employee benefits which do attract tax charges but are nevertheless desirable.

Company cars

Company cars have long been a desirable employee benefit. But over time they have become increasingly less tax efficient, to the point where they are often not worth offering. In other words, the tax the employee has to pay is so great it no longer offers value. There are some exceptions though.

The emissions determine a benefit in kind rate of between 2% (electric cars with zero emissions) and 37% (a highly polluting car) and this is applied to the list price. The exact rate depends on the CO2 emissions g/km the vehicle produces.

So let’s take a mid-range polluting vehicle attracting a 27% benefit-in-kind charge, and a list price of £30,000. The employee would pay either 20%, 40% or 45% tax through their payslip on £8,100 (27% of £30,000). This would be between £1,620 and £3,645 in additional tax every year they had use of the vehicle.

While few people will welcome that level of extra tax hit, you may already perceive that offering staff electric vehicles with just a 2% benefit-in-kind tax rate might still work really well as an employee benefit.

Private medical insurance

Private medical insurance is another go-to benefit. The tax it attracts is not as complicated as company car tax to work out – the employee just pays tax on the cost of the benefit to the employer – but it is still there to be paid.

However, employers purchasing group private medical insurance are often able to get far better deals than an individual would be able to achieve. This means the tax on a reduced-cost, feature-rich policy could represent a great deal for the employee, one which they highly prize for working for you.

Getting the balance right

What you can and should offer will depend on your budget and the nature of your workforce.

There are many other options, too, which we have not even touched upon. But a considered approach to employee benefits has the potential to help any business.

Get in touch to discuss employee benefits.

Government launches online sales tax public consultation

The Government has opened a public consultation into a new online sales tax (OST) to “rebalance” the taxation of online and in-store retail businesses.

The Treasury published its consultation on 25 February 2022, seeking answers from stakeholders on 40 questions about how an OTS should work.

If implemented, the Government would use an OST to reduce the business rates of retailers with properties in England and put additional funds into the block grants of the devolved administrations.

Supporters of an OST say in-store retailers pay a disproportionate share of business rates, making brick-and-mortar businesses less competitive.

However, critics say an OST would be a misplaced tool to help high street businesses, as the convenience of online shopping may partly explain the struggles felt by in-store retailers.

Nevertheless, the Government has been focused on helping retailers with their business rates, having announced a range of relief in Autumn Budget 2021.

The Treasury did not flesh out any specific plans rates or thresholds, saying they must define the scope and design of an online tax first.

Mike Cherry, national chairman of the Federation of Small Businesses, said:

“Efforts to level up the tax playing field between corporates that mostly operate online, paying low business rates on out-of-town warehouses, and community small businesses, which are up against high rates on high streets, are to be encouraged.

“But the Government must avoid simply adding further cost pressures to small firms that have increased their online presence to keep the show on the road over lockdowns.”

John Cullinane, director of public policy at the Chartered Institute of Taxation welcomed the consultation “as opposed to simply going ahead with a new OST”.

But we would like the Government to be clearer about the objectives of the online sales tax,” he continued.

“Is the Government content that while evidence shows that business rates today are ultimately mostly borne by landlords, the online sales tax would be very largely borne by consumers in higher prices?”

Talk to us about business tax.

House of Lords raises concerns over IR35

The Economic Affairs’ Finance Sub-Committee of the House of Lords has written to the Government, listing key recommendations on off-payroll working rules known as IR35.

IR35 legislation aims to prevent tax avoidance by workers who contract out their services through a personal limited company for tax purposes but enjoy the perks a regular employee would.

The Government changed how IR35 worked for the private sector for medium and large businesses in April 2021, putting the onus of determining a contractor’s employment status on the employer, rather than the contractor themselves.

But the extension has resulted in an increased use of “rogue” umbrella companies among workers, according to the Committee.

HMRC estimates 100,000 individuals were working through umbrella companies in 2007/08 compared to at least 500,000 in 2020/21.

The sub-committee said it was “very concerned” by the trend, as it increases the risk of workers becoming involved with umbrella companies operating tax avoidance schemes.

Lord Bridges of Headley, chair of the sub-committee, said:

“The whole point of the off-payroll reforms was to crack down on tax avoidance. Yet, as we warned the Government in our Sub-Committee’s report in 2020, it risks giving rise to a new wave of tax avoidance, as people — many of them on low incomes — end up in rogue umbrella companies.

“The Government must take action to protect workers from ‘rogue’ operators as a matter of urgency.”

The sub-committee also said the Government’s objective to achieve fairness between people cannot be restricted to tax in isolation but also apply to employment rights.

Headley said:

“The Government has said it is committed to fairness in the workplace. However, it is unfair for individuals to be treated as employees for tax purposes without having employment rights.

“Our Sub-Committee reiterates the call we made in our 2020 report for the Government to press ahead with implementing the proposals set out in the Taylor Review.”

Talk to us about IR35.

Economic forecasts dampen for 2022

The British Chambers of Commerce (BCC) has revised its forecast for GDP growth in 2022, which is now expected to grow at half the rate as it did in 2021.

GDP is now expected to grow in 2022 by 3.6%, revised down from 4.2% and compared to 7.5% growth in 2021.

The downgrade largely reflects a deterioration in consumer confidence and weak business investment amid a cost of living crisis and rising inflation.

GDP growth will slow sharply again to 1.3% in 2023 before easing to 1.2% in 2024 due to limited activity following the cost-of-living squeeze, according to the BCC.

It also warned CPI inflation could peak at 8% in Q2 2022 and outpace wage growth – significantly higher than the Bank of England’s 6% forecast.

CPI inflation is now expected to fall back to the Bank of England’s 2% target in Q4 2024, over a year later than the previous forecast of Q2 2023.

Hannah Essex, co-executive director of the British Chambers of Commerce, said:

“Our downgraded projections for the UK economy highlight the critical challenges facing business communities and households against the backdrop of the growing uncertainty surrounding both the UK and global economy.

“Coming hot on the heels of two years of a pandemic-induced squeeze on cashflow and investment plans, it is clear the Government must do more to support UK business and the wider economy.”

Plan for the long term with us.

Over one million individuals use extra time to file tax returns

More than one million individuals completed their self-assessment tax return by the extended deadline at the end of February 2022.

HMRC estimates 11.3m of 12.2m of the taxpayers who had to file a self-assessment tax return for the 2020/21 tax year did so by 28 February 2022.

Individuals and trusts required to submit a self-assessment return must usually do so by the 31 January that comes after the tax year in question to avoid a fine.

However, HMRC announced in early January 2022 that no fines would be applied for tax returns that were filed past the typical deadline but were sent to them by 28 February 2022.

This essentially extended the self-assessment deadline by a month, which HMRC also did for individuals filing their 2019/20 self-assessment tax return in 2021.

Personal tax changes for 2022/23

Tax changes kicking in from 6 April.

By the time you’re reading this, the new tax year is either just about to start or has already started.

Some of the changes have been public knowledge for months now and some of the rises have been anxiously awaited as the country continues to face a cost-of-living squeeze.

But the Government is intent on decreasing the national deficit and inflation after over £400 billion of quantitative easing by the Bank of England and global supply chain issues.

With these changes adding to the cost of living for many families, it’s more important than ever to know what changes have been made so you can prepare.

Here are the key personal taxes and tax changes you need to know in 2022/23.