The knock-on effect of the last couple of years will soon be hitting our bank accounts. In light of the devastating impact of Covid-19 on the UK's healthcare system, the Government has announced several tax measures to rebuild our public services.
Many of the changes outlined in the Health and Social Care Levy will come into effect in April 2022, after the start of the new tax year.
You may have concerns that such tax changes could have repercussions on your business' finances, particularly if you're still in recovery-mode. But the new rules don't have to cause confusion or restrict your budget. Read on to find out which changes are relevant to your business and what you need to do about them.
What tax changes are coming?
National Insurance increase for employees and employers
There will be a rise in both the amount of National Insurance (NI) to be paid and the threshold someone must earn before they’re required to contribute. The details are as follows:
- Employees and employers will pay 1.25% more in NI contributions.
- The threshold for employees to pay NI will increase as follows:
|Effective date||NI threshold|
- The threshold for employers to pay secondary NI will increase to £9,100.
- Employment Allowance will increase by 25%, allowing eligible small businesses to claim NI relief up to £5,000.
- There will also be similar changes to how self-employed people pay NI. For those paying Class 2 NI, the amount will increase to £3.15 per week if profits exceed £6,715. For Class 4, rates will increase by 1.25%.
There will also be an increase of 1.25% for tax paid on dividends. However, the threshold will stay the same, so anyone receiving dividends will only pay tax on anything above £2,000.
This means the new dividend tax rates will be:
|Tax band||Tax rate|
Other changes to taxes
From 1 April 2022, manufacturers and importers of plastic packaging will need to account for the Plastic Packaging Tax. This only applies to businesses that produce or import at least 10 tonnes of finished plastic packaging per year. You won't be taxed if the packaging contains more than 30% recycled plastic, but it'll still count towards the 10-tonne threshold. Corporate clients and domestic consumers may also be affected.
The Making Tax Digital (MTD) scheme, which has already come into force for companies with a taxable turnover above £85,000, will need to be adhered to by all VAT-registered businesses from April 2022. You can check out our full guide to MTD here.
The Chancellor has announced a cut in income tax, but this isn't due until 2024. From April that year, basic rate income tax will decrease by 1p for every £1.
Finally, freight and other transport-related businesses could benefit from a 5p per litre decrease in fuel duty.
When will the changes come into force?
The initial increase in NI thresholds for employees will take effect in April 2022. The second rise, bringing the threshold to £12,570, will happen in July 2022.
All the other changes listed will begin in April 2022 (except the income tax reduction slated for 2024).
What do the tax changes mean for my small business?
As a business owner, your main concern will likely be deducting the correct amount of tax from yourself and your employees when you process salary and dividend payments.
To get this right, you need to ensure your accounting or payroll software is set up to reflect the new rates and thresholds. The easiest way is to work with a digital accountancy service like Crunch, which provides access to software and real-life accountants.
You may also need to keep an eye on cash flow. Consistently bringing money into your company will be key over the next couple of years to avoid missed or late payments to HMRC. With many SMEs still recovering from the pandemic and Brexit, we’d recommend seeking professional advice to guarantee you’re efficiently managing your finances to maximize cash flow.
While tax changes can be daunting for a small business owner, good preparation and the right accountancy partner will enable you to continue your day-to-day operations without disruption.
Make sure you're working with an accounting service you trust to oversee your finances and address your concerns, rather than leaving you to muddle through. With an expert team taking care of the books, you can get back to what you do best: running your business.
About the author
Charlotte Nash writes content for Crunch, an award-winning online accounting service that supports freelancers, contractors, and small businesses. For more than ten years, Crunch has combined easy-to-use online accounting software with actual human beings, so you’re always able to access your accounts and seek the support you need.
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