Sunak springs surprises

The Chancellor presented two Budgets in 2021 in which he set out a great many details of the tax rates and rules that will apply until April 2026. The 2022 Spring Statement was expected to review the economic situation and adjust forecasts, but was not supposed to include anything significant about tax. Of course, things have changed dramatically since October: there is a war in Ukraine, energy prices are rising sharply and inflation has returned to levels last seen in the early 1990s. An announcement had already been made in February of measures to help people with fuel bills later in the year, and commentators were speculating how much more Mr Sunak might do now, with tax receipts running higher than forecast and the effect of inflation set to increase those receipts in the future. Most predicted he would do something, but many believed he would be cautious and leave significant changes for the next Budget.

In the event, his speech contained more on tax than almost anyone could have expected. He started with a temporary cut in fuel duty, expected to save the average motorist about £100 in the next year. He went on to remove VAT from the installation of energy-saving materials in houses, which will save money for a smaller number of people. Then he declared that he intended to implement a ‘tax plan’ going forward, with the overall aim of bringing taxes down year on year over the life of the Parliament, and started with a big surprise: a huge rise in the National Insurance Contribution thresholds to apply in July 2022 that will mean that 70% of people will pay less NIC in spite of the introduction of the 1.25% increase that will apply from April. He went on to increase Employment Allowance, which is a relief from Employers’ NIC for small businesses, and to promise a cut in the basic rate of income tax from 20% to 19% in April 2024.

The announcement of significant tax changes several times a year, to apply from different dates, makes it hard to keep track of what is changing and when, and how it affects your finances.
In this document we have set out the latest proposals and their impact, but also included a reminder of significant measures from the two Budgets in 2021 and other separate announcements.  The Spring Statement was mainly about tax cuts, but the October Budget included a number of tax increases. If you would like to discuss what it all means for you, we will be happy to help.


1.25% increase in National Insurance and tax on Dividends

The government announces tax changes to fund £12 billion a year to be spent on the NHS and social care across the UK.

National Insurance contributions (NICs) will increase by 1.25% for one year only for employees, employers and the self-employed from‌‌ ‌April‌‌ ‌2022. Those above State Pension Age are not impacted by the April 2022 changes.

From April 2023, a new ringfenced Health and Social Care Levy of 1.25% will be introduced. This will apply to both the employed and self employed. The Levy will also be extended to those over State Pension age who are in work. When the new levy comes into effect, National Insurance rates will revert back to current levels.

The levy will also apply to individuals above State Pension age with employment income or profits from self-employment.

Like National Insurance, levy contributions will apply UK-wide. People will pay the same in England, Scotland, Wales and Northern Ireland.

The government will also increase the rate of income tax on dividend income by 1.25% from April 2022.

Capital Gains Tax on Sale of Residential Property

Major changes to the tax regime for gains made on sale of residential property will take effect from April 2020. If a liability arises, you will be required to submit a provisional calculation to HMRC within 30 days of completion. You will also need to pay an estimate of the capital gains tax due.

The 30 day declaration and payment applies whether or not you are within the self assessment system. If you do complete an annual tax return, you will still be required to declare the gain on your tax return.  If not within the system, HMRC have advised that you will not need to register for self assessment but instead, after the tax year, you should review the provisional calculation to see if you have paid the capital gains tax at the correct rate i.e. 18% or 28%, and then make any changes required.

Please contact us for further information.

Making Tax Digital for VAT – When to Register

When enrolling yourself into Making Tax Digital  for VAT you should consider the timing very carefully Once signed up, HMRC will expect all future VAT returns (and any current or previous returns outstanding) to be filed through Making Tax Digital software. There are further restrictions if you pay your vat by direct debit as it is currently taking around 15 days for the direct debit to be transferred to the new system.

As an example, if your first full vat quarter, falling on or after 1 April 2019 is for the period 1 April 2019 to 30 June 2019, then, if you have a direct debit, you should sign up on or after 15 May 2019. If you do not have a direct debit then you can sign up from 8 May 2019 i.e. after the VAT return for the previous quarter to 31 March 2019 has been filed.