As we begin the new year there are some critical changes in the next 12 months that businesses and their owners need to be aware of and prepare for.

These new rules will create new challenges, complexity and costs for businesses, which could affect their ability to thrive and flourish – especially given the already difficult conditions that many companies face at the start of 2022.

MTD for VAT

The final stage of Making Tax Digital for VAT takes places this year and will require all VAT registered businesses to comply with the new digitised tax system from April – whether they are above the £85,000 registration threshold or below it.

Businesses above the registration threshold have, in the main, already had to comply with MTD for VAT since April 2019.

These businesses had an initial soft-landing period which ended in 2020 but voluntary registered businesses no longer get this luxury and could face penalties under a new points-based system.

Businesses new to the MTD regime must follow the same rules that organisations currently within the regime abide by, including using HMRC-compliant software to report and record VAT information quarterly.

The latest HMRC data shows that only a third of VAT-registered businesses with taxable turnover below £85,000 have voluntarily signed up to MTD for VAT ahead of April 2022.

If you are yet to prepare or need additional advice on MTD click here to follow our roadmap and download our free guide.

National Insurance Increase 

The Government announced a 1.25 percentage point increase to National Insurance Contributions (NICs) from April, which will affect employees, employers and the majority of self-employed workers.

Despite pledges to not raise NICs during the current Parliament, the decision has been taken to bolster the nation’s health and social care budgets in response to the pandemic.

The move will help to raise more than £12 billion for the NHS and social care system but it will mean that many individuals and businesses face greater employment costs.

The increase in NICs will initially affect everyone over the age of 16, but below state pension age, earning more than £184 per week through employment or with profits of £9,568 or more a year in self-employment.

The 1.25 percentage point increase also applies to employer NICs, minus any reliefs that a business may be entitled to.

From 2023, the Health and Social Care Levy will formalise the new rules and will require individuals working above State Pension age to contribute as well. Currently, this group are not required to pay any NICs.

For a typical basic rate taxpayer earning the current UK median income for this group of £24,100, they will have to pay an additional £180 a year, while for those earning the median higher rate income of £67,100, they would have to pay an additional £715.

The increase will not apply to Class 2 NICs, which is the flat rate paid by the self-employed with profits above the Small Profits Threshold (currently £6,515 per year) or Class 3 NICs, made up of voluntary contributions from taxpayers to fill in gaps in their contributions’ records to qualify for benefits.

Dividend Tax Rate 

Most businesses owners tend to be paid via a regular salary, as well as dividends. This is an amount paid out regularly from a company’s profits to shareholders.

Getting this balance right can sometimes be the difference between paying tax at the basic, higher and additional rate, as well as affecting other personal tax reliefs and National Insurance contributions.

If you operate a business, you can use the tax-free dividend allowance of £2,000. Any dividends over this amount will currently be taxed at different amounts depending on your marginal rate as follows:

• Basic-rate taxpayers pay 7.5 per cent on dividends.
• Higher-rate taxpayers pay 32.5 per cent on dividends.
• Additional-rate taxpayers pay 38.1 per cent on dividends.

You should be aware that from April these rates will increase by 1.25 percentage points. The new rates from this date are as follows:

• Basic rate – pay 8.75 per cent
• Higher rate – 33.75 per cent
• Additional rate – 39.35 per cent

If you manage the pay of directors within your payroll, you may need to consider the change in rates when setting remuneration.

Nevertheless, by carefully balancing the amount of salary you pay and the dividends you receive you can still reduce the amount of tax dividend recipients pay.

Here to support you throughout 2022 

These three measures are just some of the many changes due to take place in 2022 that could affect you and your business.

Our entire team are here and ready to support businesses and entrepreneurs as they navigate the challenges of the next 12 months.

To find out more about our wide range of accounting, tax and business advisory services, please contact us.