October 2021
Technical and Client Update
In this issue
1.25% Increase in NICs to fund Health and Social Care
Dividend tax rates also increasing from 2022/23
Planning actions before the new rates commence
MTD for Income Tax postponed to 2024/25
HMRC support with childcare costs
Trust Registration Service (TRS) update
Exam success
1.25% Increase in NICs to fund Health and Social Care
Content accurate as at 27.9.21
The Prime Minister announced on 7th September that the government will introduce a new 1.25% Levy to provide an extra £12 bn a year to support the NHS and social care.
From April 2022, it is proposed that there will be a 1.25% rise in National Insurance Contributions (NICs) to be paid by both employers and workers. This will then become a separate Levy on earned income from 2023/24 - calculated in the same way as NIC and appearing on an employee's payslip.
Note that the 1.25% increase also applies to the Class 4 contributions paid by the self-employed on their profits. The Class 1 NI contributions paid by employees increase to 13.25% of earnings above £9,568 and the self-employed rate increases to 10.25%. The 3% differential remains for the time being, although there are rumours that the rates will align in the future. Above £50,270 earnings or profits the rate will be 3.25%.
The employers Class 1 NIC rate will increase from 13.8% to 15.05% from 6 April 2022, however, many small businesses are able to offset the £4,000 employment allowance against their employers NIC liability. Many workers operating through personal service companies to whom the new “off-payroll” working rules apply will also be caught by the proposed measures.
Dividend tax rates also increasing from 2022/23
It is also proposed that there will be a 1.25% increase in the rate of tax payable on dividends received by those who own shares in companies. This would mean that after the £2,000 tax free dividend allowance the rate of tax would be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for those with income in excess of £150,000 a year. This will catch many family company director/shareholders who traditionally “pay” themselves by taking a low salary and larger dividends to minimise NICs.
Planning actions before the new rates commence
The announcement of the proposed changes more than six months before they take effect means that there is time to reduce the impact. Employees could consider agreeing a salary sacrifice arrangement with their employer, for example, sacrificing their £5,000 annual bonus for an additional pension contribution paid by their employer. Such an arrangement would save 1.25% NICs for both employee and employer as well as £2,000 income tax where the employee is a higher rate taxpayer.
Employees might also consider a salary sacrifice arrangement in favour of an electric company car.
Shareholder/directors of family companies could consider bringing forward dividend payments to before 6 April 2022. Such a strategy needs careful planning as if the extra dividend takes the taxpayer’s income above £50,270 the excess would be taxable at the 32.5% rate instead of the 7.5% rate and the planning could backfire.
MTD for Income Tax postponed to 2024/25
Having listened to stakeholder feedback from businesses and the accounting profession, the government have announced that they will introduce Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) a year later than planned, in the tax year beginning in April 2024.
This will give the self-employed and buy to let landlords an extra year to prepare for the digitalisation of Income Tax and also allow HMRC more time for customer testing of the pilot system.
The start date for partnerships to join MTD for ITSA has been put back still further to the tax year beginning in April 2025.
There has been no change to the £10,000 per annum gross income threshold which means that most self-employed traders and buy to let landlords will be mandated to comply with MTD for income tax from April 2024.
HMRC support with childcare costs
With more employees going back to work after the end of CJRS furlough support, they need to start thinking about childcare if they have children.
If they haven’t already done so employees should set up a “Tax-Free” Childcare Account to help pay towards the cost of childminders, breakfast and after school clubs, nursery fees and approved play schemes.
For every £8 an eligible family pay into the special account the government adds £2, up to £2,000 a year, or up to £4,000 a year if a child is disabled. The scheme is available to parents or carers who have children aged up to 11, or 17 if their child is disabled.
Trust Registration Service (TRS) update
In recent years HMRC have introduced a Trust Registration Service (TRS) for certain trusts, whereby details of the trust need to be registered by the trustees with HMRC, with an obligation to update the register when there are any changes and annual declarations having to be made on TRS. These have been trusts that have a tax liability, whether that be income tax, capital gains tax, inheritance tax or stamp duty land tax.
Following the EUs Fifth Money Laundering Directive, a greater number of trusts now need to register with HMRCs TRS, not just trusts that have a tax liability, and such trusts need to be registered no later than 1 September 2022. Although there are exceptions to the wider registration criteria, such as life assurance trusts and charitable trusts, it is important to identify trusts that you may either have created yourself or trusts that you or your family may benefit from or could benefit from in the future to see if such trusts need to be registered if they have not already.
If you consider that registration on TRS could be relevant to you please do contact us for further information.
Exam success
We are pleased to announce that Alex West has passed his exams to qualify as a Chartered Accountant (ACA).
With his Accounting Technician (AAT) qualification completed in 2016 Alex was part way through his ACA studies when he joined the firm in September 2018. Whilst working for Partner Andrew Robinson Alex achieved his Chartered Accountancy qualification (ACA) in September this year. Alex has a keen eye for detail and is a valued member of our Audit team.
“I am incredibly proud of myself and thrilled to qualify as a Chartered Accountant. I really appreciate all the support which I have received at Humphrey & Co and look forward to tackling new challenges and utilising the skills that I have obtained,” said Alex.
Senior Partner Anthony Smith comments “Alex has worked incredibly hard to achieve this prestigious qualification. We invest heavily in staff development and learning, it’s a partnership effort and Alex has more than risen to the challenge and played his part. All the partners offer their congratulations and look forward to watching Alex spread his wings and help shape our audit department for the future.”