Beatons have a wealth of experience in advising businesses and individuals on a range of key tax and financial planning issues. Here we consider strategies to help you to minimise your tax bill, maximise your profitability and boost your wealth.
2021 saw two Budgets due to the exceptional circumstances in which the country found itself. The Chancellor made a number of changes, both to raise taxes to meet the £440bn of additional expenditure caused by the pandemic but also to stimulate business recovery, and some of these are dealt with below.
The UK-wide personal allowance rose to £12,570 from 6 April 2021 and the basic rate band also increased to £37,700. This means the higher rate threshold – the point at which you start paying higher, rather than basic rate tax in England, Wales and Northern Ireland – increased to £50,270 (if you have a full personal allowance).
The personal allowance and higher rate threshold are now frozen until at least 5 April 2026 when the personal allowance and basic rate limit will be indexed with the Consumer Price Index by default.
Scottish taxpayers: income tax rates and bands for non-savings and non-dividend income are different from the rest of the UK: see Personal Tax Essentials later in this guide. The freeze to the personal allowance impacts Scotland, although the freeze to the UK higher rate threshold only affects those with savings and dividend income.
The Social Care Levy
The government will introduce a new, UK-wide 1.25% Health and Social Care Levy from April 2023 although the Levy was effectively introduced from April 2022, when national insurance contributions (NICs) for working age employees, self-employed and employers increased by 1.25%. The Levy will not apply to Class 2 or 3 NICs.
From April 2023, the 1.25% Levy will be formally separated out and will also apply to individuals working above State Pension age, at this time NICs rates will return to their 2021/22 levels.
Existing NICs reliefs to support employers and the Employment Allowance will also apply to the Levy.
In addition, the rates of taxation on dividend income are increased by 1.25% to 8.75%, 33.75% and 39.35% from April 2022.
Spring Statement 2022 and NIC
The Chancellor announced that between 6 April and 5 July 2022, employees will be able to earn £190 a week without paying Class 1 NICs and the Levy. From 6 July 2022 this weekly threshold will increase to £242.
For 2022/23, the self-employed will be able to earn £11,908 before paying Class 4 NICs. In addition, the point at which the self-employed start paying Class 2 NICs increases to £11,908. This means that those with profits between the small profits threshold of £6,725 and the lower profits limit of £11,908 will not need to pay Class 2 NIC from April 2022 but will still be able to access entitlement to contributory benefits.
The single largest revenue-raiser is a proposed increase in corporation tax from 1 April 2023 to 25% where profits for an accounting period exceed £250,000. If a company has no associated company in the accounting period and its profits are up to £50,000, the small profits rate will be 19%. If a company has no associated company in the accounting period and its profits are between £50,001 and £250,000, a marginal rate will apply.
If a company has one or more associated companies in the accounting period then the limits are divided by the number of associated companies plus one. For an accounting period of less than 12 months the lower limit and the upper limit are proportionately reduced. There are a number of complex rules regarding associated companies.
Plant and machinery - super-deduction
Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery benefit from new first year capital allowances. Under this measure a company is allowed to claim:
- a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
- 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.
Your financial planning strategy
In the face of ongoing change, it is more important than ever to have a robust business and personal financial planning strategy in place, to help ensure that you and your family are financially secure and on course to achieve your long-term goals.
If you would like advice on tax planning strategies, please contact Beatons.