The beginning of the personal financial year in April is always a time of change. Both personal and company taxation tend to undergo revision. In some years, the weight of taxation is relieved and in others, it increases.
After the economic devastation and record government borrowing of the past two years, this coming April, the financial burden is set to increase. And tax measures are not the only source of rising costs for businesses.
Every small and medium-sized enterprise will be hit financially to some degree, so here at Inventory Base we felt it would be helpful to have a look at what’s coming and, more importantly, when it’s due to arrive.
31st March 2022 – VAT Deferral Scheme
In response to the economic damage caused by the Covid-19 outbreak, HMRC introduced a VAT deferral scheme to help ease the financial pressure on struggling businesses.
It was originally intended to close in June 2021 but was extended for nine months and will now close at the end of March 2022. After this date, all deferred VAT must be paid or it will be subject to surcharges and even penalties.
1st April 2022 – The National Living Wage
This is a big date.
Mainly because it marks the increase of the National Living Wage (NLW).
For employees aged 23 and over, the hourly rate of pay will rise by 6.6% from £8.91 to 9.50.
The lower age bands will also see increases of between 4.1% (to £4.81 for 16-17s and £6.83 for 18-20s) and 9.8% to £9.18 for those in the 21-22 year-old bracket.
Apprentice rates have the largest percentage rise of 11.9% to £4.81, while the accommodation offset increases from £8.36 to £8.70
In real terms, these appear to be very modest increases, but the percentage figure is telling because it gives a much better indication of the real impact of these increases on the payroll of the average SME. Half of the changes are well above the inflation rate, even though that has risen sharply in the past year.
It is worth pointing out that the NLW used to be called the Minimum Wage and the change of name can cause some confusion because of the simultaneous existence of the Living Wage, which is independent of the Chancellor, administered by the Living Wage Foundation and purely voluntary. It is usually raised in November.
Currently, about 9,000 employers are signed up to the scheme, which purports to be based on a calculation of what people actually need to get by, rather than the Treasury’s figure which is often accused of failing to match the reality of the cost of living.
1st April 2022 – Corporation Tax
This has been reduced under successive Conservative administrations from 26% in 2010 to 19% in 2017, which is the level at which it will continue from 1st April 2022.
However, the announcement of this freeze was accompanied by the news that for companies reporting profits of £250,000 or more, this rate will leap back up to 25% the following year.
The threshold is intended to exclude most SMEs.
From April 2023, a new Small Profits Rate (SPR) of 19% will apply to businesses whose profits are below £50,000.
This leaves a gap between £50,000 and £250,000. Businesses whose profits fall into this band will be subject to the full 25% but this will be reduced by marginal relief.
Eligibility will be assessed according to factors including short financial accounting periods or associate companies.
However, some economists have warned that the complexity of the formula used to calculate relief may have the effect of increasing taxation on profits in the marginal range to a level even higher than 25%.
The effects of these changes will be scrutinised closely and the Chancellor does also have another year to amend them if necessary.
6th April 2022 – National Insurance (NI)
To fund a new social care levy, the Treasury is ignoring the government’s manifesto pledge not to raise National Insurance contributions, by raising National Insurance contributions.
Employees will have to find another 1.25% out of earned income while employers’ liability will rise by 1.5% bringing the contribution of businesses to 15.3% of the earnings of most of their employees.
According to PwC, in 2020 NI contributions already accounted for 25.7% of company taxation carried by the UK’s largest firms.
The increase on 6th April comes a year before the Corporation Tax hit.
6th April 2022 – Dividend Tax
A second source of funding for the social care levy is a 1.25% rise in the rate of Dividend Tax.
This is a tax paid by individual shareholders on dividends received. Institutional shareholders are taxed differently.
However, it is conceivable that there could be pressure from shareholders in SMEs to have this tax rise offset by increased dividend payments, potentially parking the new financial burden at the door of business owners.
The cost of exporting to EU countries has risen by 8-9% since the UK withdrawal, which represents about Ł25 billion a year. Specific industries face further administrative burdens:
1st September 2022 – Dairy
For any business trading in dairy products with EU countries, customs duty regulations will change and certification and physical checks will be introduced. While this does not give rise to any specific charges, it will inevitably increase business costs.
1st November 2022 – Animal Products
The requirement of certification and physical checks will be extended to all regulated products of animal origin.
1st April 2023 – Corporation Tax
As discussed above, the biggest rise in Corporation Tax for a decade takes effect.
From 1 April 2023, the Corporation Tax main rate for non-ring fenced profits will be increased to 25% applying to profits over £250,000.
A small profits rate (SPR) will also be introduced for companies with profits of £50,000 or less so that they will continue to pay Corporation Tax at 19%.
Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective Corporation Tax rate.
Whatever your business, even if it is entirely domestic, 2022 is bringing increased costs your way, and saving perhaps the biggest blow of all to your financial health until 2023.