The only constant that remains in anyone’s life is change and the situation with the tax regime in the UK is similar. Every year the finance budget is introduced by the chancellor of the exchequer in March. The UK fiscal year begins on 6 April and ends on 5 April the following year while the financial year begins on 1 April and ends on 31 March each year. Therefore, the UK budget for a financial year would cover the period from 1 April to the following 31 March.
A common interchangeable jargon used to refer to the finance act in UK is ‘the budget’. For the year 2022 the budget runs through the financial year starting from 1st April 2022 till 31st March 2023 and applies to corporations, whereas the fiscal year runs from 6th April 2022 till 5th April 2023 and applies to sole traders and individuals.
In the budget 2022-23, key elements relating to certain changes have been highlighted here.
1. Corporation tax
This is a tax paid by a limited company, any foreign company with a UK branch or office, a club, co-operative or other unincorporated association, e.g. a community group or sports club.
For the 2022 financial year the main rate of corporation tax is 19% and for the 2023 financial year the main rate of corporation tax is 25%. For financial year 2023 onwards, there are two rates of corporation tax which may apply to UK companies, depending on the amount of their profits. The main rate of corporation tax is 25% and the standard small profits rate is 19%
The P11D form is a statutory form required to be filed with HMRC by businesses that detail benefits paid to their employees and the cash equivalents of those benefits. You will also need to file a P11D (b) alongside it.
From 6 April 2022, the interactive PDF used to submit P11D and P11D(b), HMRC’s Online End of Year Expenses and Benefits service, will no longer be available. Instead, employers should use HMRC’s PAYE Online service. This allows:
• Submissions for up to 500 employees; and
• Online submissions of P46(car) – without the need to download the latest Adobe
End-of-year expenses and benefits can also be reported using commercial payroll software. Employers may access HMRC’s PAYE Online Service using the government gateway details used for the previous service. In the event of any issues, support can be found through the help function on the PAYE Online Service or by contacting the online services helpdesk.
3. Section 455 Tax
It is usual for family and personal company directors to lend and borrow to/from the company. Under such circumstances, a record of the amount borrowed is kept in the DCA (director’s loan account). The loan can be cleared by paying dividends or salary, settling expense claims by the directors or by a repayment. If the director’s loan account is not cleared at the end of the accounting period and the loan has not been repaid within nine months of the year end, the company must pay an amount of corporation tax equal to 33.75% of the loan balance outstanding at this point over to HMRC. This is known as section 455 tax. If the loan is repaid, this tax can be reclaimed.
Reclaiming section 455 tax is possible once the loan has been repaid however the repayment cannot be claimed until nine months and one day after the end of the accounting period in which the loan was repaid. This is the normal corporation tax payment date for the accounting period in which the loan was repaid. The loan needs to be repaid before the company’s corporation tax is due, 9 months and 1 day after the end of the accounting period. If the loan remains unpaid at that date, the company will be liable to an additional tax charge. In specific circumstances, the director may also be required to pay additional tax and national insurance under the PAYE ‘benefit in kind’ (BIK) rules.
4. Capital Gains tax
CGT is a tax on the proceeds from the sale of anything that an individual owns. For an asset owned for more than a year, it is calculated on the gain generated calculated by finding the difference between the sales price and the purchase cost. Typically, CGT is applicable to:
• Investment funds
• Second properties
• The sale of a business
• Art and antiques
• Valuables like jewellery
• Assets transferred below fair market value
• Inherited properties
According to the UK Government, disposing of an asset includes:
• Selling or swapping it for something else
• Giving it away as a gift or transferring it to someone else
• Getting compensation for it – like insurance pay out in case it has been lost or destroyed
Also, if capital gains tax is due when an asset is sold for a profit, there are four possible rates based on income levels.
• 10% tax rate – applies to lower rate taxpayers selling non-property assets
• 18% tax rate – applies to lower rate taxpayers selling residential property
• 20% tax rate – applies to higher and extra rate taxpayers who sell non-real estate assets
• 28% tax rate – applies to higher and extra rate taxpayers selling residential property
5. Income tax
This is a tax individuals must pay on their total earnings during a fiscal year arising from various sources that fall under self-assessment filing requirements, such as:
• are a sole trader earning more than £1,000
• are a partner in a business partnership
• have a total income over £100,000 or have complicated tax affairs
• have an income over £50,000 and either you or your partner receive child benefit
• get income from savings and investments or dividends over £10,000
• have property income over £10,000, or profits over £2,500
• need to pay capital gains tax on assets you have sold
• are a religious minister, Lloyd’s underwriter, examiner or share fisherman
Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner. This reduces their tax by up to £252 in the tax year (6 April to 5 April the next year).
To benefit as a couple, you (as the lower earner) must normally have an income below your Personal Allowance – this is usually £12,570.
You can calculate how much tax you could save as a couple. You should call the Income Tax helpline instead if you receive other income such as dividends, savings or benefits from your job.
6. National Insurance Contributions (NIC)
Between 6th April to 5th July 2022, employees were able to earn £190 a week without paying Class 1 NICs. From 6th July 2022 to 5th April 2023, this weekly threshold will increase to £242 per week. The move is designed to lessen the impact of the 1.25 percentage point rise in employee NICs from 12% to 13.25% on earnings up to £50,270 per annum. Earnings above this figure now incur NICs of 3.25% instead of 2%. In fact, the revised NIC threshold in July will remove NICs altogether for some 2.2 million workers nationwide.
Class 1 (primary) NI. Paid by employees on the wages they earn working for someone else.
Class 1 (secondary) NI. Paid by employers, who make NI contributions towards their employees’ NI.
Class 1A or 1B NI. Some employers might also need to make NI contributions on the equivalent financial value if they provide any work benefits (sometimes known as Benefits in Kind) to employees.
Class 2 NI. Self-employed people pay Class 2 NI on what they earn through their business activities.
Class 3 NI. These are voluntary contributions that you can make if you need to top up the amount you have paid in a tax year.
Class 4 NI. Depending on how much they earn, self-employed people might also pay Class 4 NI on their business activities.
From April 2022 there has been a temporary increase to the rate of Class 1 and Class 4 NI because of the new Health and Social Care Levy. These rates will return to normal the following year.
Employee income was subject to employee nil NICs if they earn under £9,880 per annum and this threshold has increased to £12,570, in line with the personal allowance, as of 6th July 2022.
An employee’s NI contribution actually has two parts; their own contribution (which comes out of their pay), and their employer’s contribution (which the employer pays). If you’re an employer you’ll deduct your worker’s contribution from their wages each time you pay them.
When an employer pay this on to HMRC using PAYE, you’ll add on your NI contribution as their employer. The information that you send to HMRC will show how much you’re paying as the employer, and the amount which you’ve taken from the employee on their behalf.
7. Dividends tax
Individuals who own shares in a company earn money: from selling the shares if they grow in value or from dividends paid by the company if it chooses to distribute profits to shareholders. Sale of shares comes under the CGT explained earlier. However, tax on dividends is lower than the rate you’ll pay on money from other sources of income. Furthermore, from 6 April 2022 dividend tax rates have gone by 1.25 %.
You can use your tax-free dividend allowances, meaning you can earn more income from your investments before you’ll start paying tax. Dividends can be a great way to generate a regular income from your investments. But, as with any income you earn, you may have to pay tax.
8. Inheritance tax
This is a tax that is colloquially called the ‘death tax’ because it is levied upon the estate of a person upon their demise. An estate is defined as the belongings that a person owned, including property, savings and other assets and IHT only applies to the value of their estate after death. This means that beneficiaries named in the will may not receive everything they expect as the Executors must pay up to 40% of the value of the deceased’s estate above the tax-free allowance, currently £325,000.
The requirement to report all IHT transactions has been scrapped from January 2022 onwards, for estates that falls below the IHT threshold. This means if the estate is less than £325,00 the executors will no longer have to file IHT paperwork. In addition, there will no longer be a need for physical signatures on an IHT return for any issues relating to either the estate or a trust. This change was introduced as a temporary measure due to the global pandemic but from January 2022, it will be made permanent. There are exemptions in IHT for transfers between spouses, enabling bypass taxation. HMRC has confirmed the following are considered as spouses under IHT law for tax purposes:
• People legally married to each other, including same sex couples
• People who are legally registered as civil partners
• People who are legally married but separated at death
• People within a valid polygamous marriage
The nil rate band of £325,000 has not been changed since 2009 and it was widely expected to be increased in the spring budget of 2021, however, the chancellor recently announced it would remain frozen at the same rates until 2026.