The current Chancellor of Exchequer Rishi Sunak announced his third budget on Wednesday 27th October 2021, with a lead up of interesting “leaked proposals”. This was a budget of expectations, following the recent Covid 19 pandemic, where it was expected that it would acknowledge issues such as increased inflation. and the increase in the cost of living, plus the cost of the pandemic to businesses and individuals.
- An increase to National Insurance contributions for both individuals and employers, initially from April 2022 as part of the Health and Social Care Levy.
For employed and self-employed individuals an increase of the rate by 1.25% percentage points, either a deduction via payroll, or on class 4 contributions on profits.
For employers, they will pay again an additional 1.25% percentage points.
The government reminded us about the current employment Allowance (that allows eligible employers to reduce their NIC liability by up to £4,000 per year), stating that they believe that 40% of small business owners will pay nothing extra in employer NIC.
- Dividend Tax to rise from April
Individuals who receive dividend income will also face a higher tax bill as dividend tax will rise by 1.25% percentage points from April 2022.
The dividend tax is applicable on dividend income above the individual’s dividends allowance of £2,000 and above the £12,570 personal allowance. Dividends on assets held in ISA’s are excluded from the dividend tax.
From the 2022/23 tax year, the basic rate dividend tax will rise from 7.5% to 8.75%.
Higher rate taxpayers will be charged at 33.75%, an increase from the current rate of 32.5%
Additional Rate taxpayers will be charged at 39.35%, up from 38.1%
- National Living Wage to increase
From 1st April 2022, the National Living Wage will rise to £9.50 per hour, with young people and apprentices also seeing increases in their associated rates.
- Basis Period Reforms and Making Tax Digital
The complexities around basis period rules for the self-employed will be reformed so that business profits for a tax year will be the actual profit/loss in the year itself, regardless of the soles traders year-end. This means that should a sole trader has an unaligned year-end (not 31 March or 5th April) will have the 2023/24 tax year to transition, ready for the new rules coming into force from 6th April 2024
The above changes are being made to support the new Digital Tax System, part of which is Making Tax Digital for VAT, already in place, but the Basis Period Reforms are for Making Tax Digital for Income Tax
Making Tax Digital for Income Tax will now be introduced from 6th April 2024.
For partnerships, (made up of individuals), the new Making Tax Digital rules will apply from April 2025. All other partnerships (i.e LLP’s, or partnerships with corporate partners) will be required to join Making Tax Digital at a future date that has not been confirmed.
- Landlord and Second homeowner Capital Gains Tax Payment and Reporting
From the 27th of October 2021, the deadline to report and pay any Capital Gains Tax after selling UK residential property will increase from 30 to 60 days after the completion date.
For Non-UK residents disposing of property in the UK, the same extended deadline will apply.
