The new tax year 2022/23 begins later this week on 6 April 2022 after the new financial year commenced last week on 1 April 2022. 5 April 2022 is the deadline to claim certain allowances and reliefs such as claims for the marriage allowance which are still in time for the tax year 2017/18 but only up to 5 April 2022. Let’s take a look at the key tax changes which take effect as a result.
Income Tax and National Insurance Contributions
The headline changes which will apply from 6 April 2022 are the 1.25 percent increase in National Insurance Contributions (“NICs”) which was announced in September 2021. Class 1, (employee and employer), Class 1A and 1B and Class 4 (self-employed) NICs are all affected.
From 6 April 2022, the rate of income tax on dividends will also increase by 1.25 percent from 7.5 percent to 8.75 percent for basic rate taxpayers. Higher rate taxpayers will pay 33.75 percent up from 32.5 percent and additional rate taxpayers will pay 39.35 percent, up from 38.1 percent.
In the recent Spring Statement, the Chancellor announced that from 6 July 2022, the primary threshold for Class 1 national insurance contributions (“NICs”) by employees will increase from £9,880 in 2022/23 to £12,570 for the remainder of 2022/23. The lower profits limit for Class 4 NICs is set to increase to £11,908 from the same date.
From 6 April 2022, self-employed individuals with profits between the small profits threshold (£6,725 for 2022/23) and the lower profits limit will not pay Class 2 NICs, however such individuals will be able to continue to build NICs credits for the purposes of contributory state benefits. Also from 6 April 2022, the Employment Allowance (which allows eligible employers to reduce their annual Employer’s Class 1 NICs liability) will increase by £1,000 to £5,000.
There is no change to the personal allowance which remains at £12,570, nor to the other rates of income tax and their bands but the Chancellor did announce during the Spring Statement that he intends to reduce the 20 percent income tax rate to 19 percent in 2024, subject to certain fiscal conditions being met.
Making Tax Digital (“MTD”) for VAT
From their first VAT period starting on or after 1 April 2022, VAT registered businesses (including the self-employed and landlords) with turnover below the £85,000 VAT registration threshold are required to operate MTD for VAT. This means that the following two conditions must be met:-
They must keep their records digitally (for VAT purposes only)
They must file their VAT returns using MTD compatible software.
However, some businesses may be exempt from MTD for VAT under the digital exclusion exemption. For those that are not exempt, HMRC is not providing a soft-landing for either element of the MTD for VAT requirements. Chartered Accountants Ireland has written to the Financial Secretary to the Treasury setting out the case for providing a soft landing in respect of this major change.
Red diesel changes
From 1 April 2022, rebated diesel (known as red diesel) and rebated biofuels are no longer allowed to be used as they were previously. This means that businesses in the construction industry can no longer use red diesel for most purposes.
From 1 April 2022 you can only use rebated fuel for the following specific purposes:
For vehicles and machinery used in agriculture, horticulture, fish farming and forestry (includes allowing vehicles used for agriculture to be used for cutting verges and hedges, snow clearance and gritting roads)
To propel passenger, freight or maintenance vehicles designed to run on rail tracks
For heating and electricity generation in non-commercial premises. This includes the heating of homes and buildings such as places of worship, hospitals and townhalls; off-grid power generation; and non-propulsion uses on permanently moored houseboats
For maintaining community amateur sports clubs and golf courses
As fuel for all marine craft refuelling and operating in the UK, except for propelling private pleasure craft in Northern Ireland
For powering the machinery of travelling fairs and circuses.
A HMRC webinar setting out the changes is available to view here:- https://www.youtube.com/watch?v=hwdiKDMgM6s
Miscellaneous
A number of new taxes also came into operation this month including the Plastic Packaging Tax and the Residential Property Developer Tax.
The Plastic Packaging Tax came into force on 1 April 2022 and is charged at a rate of £200 per tonne. If a business has manufactured or imported 10 or more tonnes of finished plastic packaging components within the last 12 months, or will do so in the next 30 days, it must register with HMRC for this tax.
This applies to plastic packaging manufactured in, or imported into the UK, that does not contain at least 30 percent recycled plastic. Plastic packaging is packaging that is predominantly plastic by weight.
The Residential Property Developer Tax (“RPDT”), which also applies from 1 April 2022, is charged on profits of companies which arise from residential property development and which are recognised in accounting periods ending on or 1 April 2022, but only if profits from that activity exceed £25 million per year (this allowance can be allocated by groups between its companies).
Profits in excess of the allowance are taxed at a rate of 4 percent, with the tax due required to be reported and paid as part of the company’s Corporation Tax return.
The legislation for this was enacted in Finance Act 2022 with the initial guidance which was available now published in the new RPDT manual. This was developed by HMRC in conjunction with stakeholders and provides further clarifications on how RPDT will operate, including a number of examples.
Other notable changes from 1 April 2022 include increases in the National Minimum Wage and Living wage hourly rates, the requirement imposed on certain large businesses to notify HMRC of an uncertain tax treatment and the extension to various corporation tax creative sector reliefs.
From 6 April 2022, there is also a new requirement that companies must meet to be able to reclaim Construction Industry Scheme (“CIS”) deductions. This requires contractors who wish to reclaim CIS deductions via their Employer Payment Summary (“EPS”) to include details of their Corporation Tax Unique Taxpayer Reference number on the EPS.
HMRC has also issued guidance on its new power to publish information about tax avoidance schemes. Following Royal Assent to Finance Act 2022, Section 86 provides HMRC with a power to publish information about tax avoidance schemes and about persons suspected to be promoters of those schemes.
The guidance explains when details may be published, the type of information that may be published and where it may be published, together with the process for making representations about whether the information should be published.
HMRC’s new powers and penalties to tackle the form of tax evasion known as electronic sales suppression (“ESS”) came into effect when Finance Act 2022 received Royal Assent on 24 February 2022.
ESS is where a business manipulates electronic sales records to hide or reduce the value of individual transactions. This reduces the recorded turnover of the business and its tax liabilities, while providing an apparently credible and compliant audit trail.
The new powers aim to ensure businesses pay the right amount of tax and also to level the playing field for compliant businesses by tackling the possession, making, supply and promotion of ESS tools (ESS software and hardware). The penalty is a fine of up to £50,000. There are also new ESS-specific information powers. These powers allow HMRC to obtain details of those involved in the supply chain of ESS tools and to understand more about the tools.
Safeguards for taxpayers include giving businesses a 30-day grace period to remove the software to avoid a penalty and the right to appeal against any penalties.
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