Henry Pettitt, Partner at Stephenson Smart in Great Yarmouth, explains how the Government’s tax changes and new plan for supporting the UK’S health and social care system will work.
How will the government’s tax changes from next April affect you?
On 8 September we witnessed one of the biggest announcements to date since the beginning of the pandemic, with tax changes agreed to fund £12bn a year to support the NHS and social care backlog across the UK.
From April 2022 National Insurance contributions (NICs) will increase by 1.25pc for one year only for employees, employers and the self-employed.
This will cover both Class 1 (employee and employer), Class 1A and 1B and Class 4 (self-employed) contributions, although State Pension Age are not impacted by the April 2022 changes.
Essentially if you earn more, you will pay more.
From 2022/23, if you earn around £24,100 you will have to pay in the region of £180 extra in National Insurance, while someone earning £67,000 will contribute another £715.
Health and Social Care Levy
From April 2023 the National Insurance contribution rates will decrease back to the levels of 2021/2022, with the introduction of a new Health and Social Care Levy.
The new ring-fenced levy of 1.25pc will apply to those who pay Class 1 (employee and employer), Class 1A and 1B and Class 4 (self-employed) NICs.
It will also be extended to those over State Pension age who are in work, with employment income or profits from self-employment above £9.568.
The levy will be administered by HMRC and collected through the current reporting and collection procedures for NICs – Pay As You Earn and Income Tax Self-Assessment.
The government will also increase the rate of income tax paid by people who receive dividend income from shares by 1.25% from April 2022.
These tax changes are all part of the need for a long-term solution to funding health and social care, allowing everyone to pool and share risks and resources.
In the Chancellor’s spring Budget, we expected a raft of tax changes; these weren’t made. Instead, the Chancellor concentrated on encouraging investment and spending to help the economy recover from the impact of the coronavirus pandemic.
However, we do expect these tax changes to be made at some point in the future. In this article and video, I explain to you what areas are being considered for change, and how you can respond to that to maximise your allowances.
Relief for Pension Contributions
This was an area that we thought would be changed but wasn’t. The lifetime allowance rate has been frozen and, currently, all pension contributions are tax free, subject to an income threshold and annual allowance that is now 40,000 pounds.
Pension contributions can be made by your company or individually, they also save tax at the Corporation Tax Rate, Basic Rate, Higher Rate and Additional Rate, which is 45 per cent.
Pension contributions are flexible and can be made monthly or as a one-off lump sum. You can carry forward unused Annual Allowance for up to three years and use towards a lump sum pension payment. This can be very useful if you have one-off additional profits or if you sell an asset at a large gain. You can reinvest into a pension to increase your basic rate band or tax allowance.
The Chancellor may make changes to these tax breaks to create more of a level playing field for those with less wealth.
These changes could be reducing the Annual Allowance from 40,000 pounds to 10,000 pounds, removing the ability to carry forward allowances, and the rate of tax relief could be restricted.
I think these changes are likely but only when the economy has recovered sufficiently and will also be influenced by the government’s 10-year strategy for tax reform.
As a specialist in these areas, I would be happy to help you navigate these tax rules and potential changes.
Our experts can guide you through all aspects of personal tax, from self-assessment assistance to bespoke tax planning.
The UK tax system is increasingly complex and the responsibility rests with the individual to calculate and pay the correct amount of tax under self-assessment.
We offer a complete service to ensure that all returns are made to HM Revenue & Customs on time, all of your obligations as a taxpayer are fulfilled and, most importantly, that the correct amount of tax is paid.
How is my income tax assessed?
Individuals are assessable on a wide variety of income such as employment income; investment income – both dividend and interest; pensions; child benefits and tax credits; trust income; benefits in kind – such as company cars and fuel allowances and rental income.
We can ensure that your tax liability is minimised through income tax planning and the correct calculation of taxable income. We can also make sure that all available reliefs and deductions are claimed.
Under the Taxes Management Act 1970, HM Revenue & Customs have the statutory power to enquire into any self-assessment tax return. This is a potentially daunting process; however, we have the expertise and experience to help you deal with this potentially time consuming and complicated process.
Our professionals can deal directly with HM Revenue & Customs on your behalf to answer questions raised by HM Revenue & Customs and bring enquiries to a satisfactory conclusion, even if we were not responsible for submission of the return to which the enquiry relates.
Income Tax Planning Advice
We would be able to offer advice specific to you and your needs on an individual basis in relation, but not limited to, the following events:
Registration for self-assessment
Receipt of income liable to income tax
Receipt of child benefit and the claw back for individuals earning over £50,000
Calculation and application for tax credits
Receipt of benefits in kind such as a company car or van, fuel allowances, private medical insurance, use of company assets for private use etc
Advice on tax coding notices received from HM Revenue & Customs
How Can Stephenson Smart Help?
We take time to get to know you and your personal circumstances working with you to maximise tax savings in the face of ever changing legislation, increasing pressure on you to formalise and sort out your own tax affairs in the face of harsher penalties and HMRC’s ever growing powers. As such, we are able to provide expert income tax planning advice.
National Insurance can be a complicated area if you’re not sure of the rules and regulations. In return for paying National Insurance Contributions you qualify for the following state benefits:
Basic state pension; Additional state pension
New state pension
Contribution based job seekers allowance
Contribution based employment and support allowance
Maternity allowance and bereavement benefits
Types of National Insurance
There are different types of National Insurance that are paid by either an individual or employer, listed below:
Class 1 Primary – paid by an employee on employment income, collected under the PAYE system*
Class 1 Secondary – paid by an employer on income paid to employees, collected under the PAYE system*
Class 2 – paid by the self-employed at a defined weekly rate if earnings from self-employment are greater than a set limit
Class 3 voluntary contributions – paid by made by those seeking to retain entitlement to state benefits who are not making sufficient Class 1,2 or 4 contributions
Class 4 – Paid by the self-employed on earnings between a set limit
Class 1A – Paid by an employer on the value of benefits in kind provided to employees
Class 1B – Paid by an employer on PAYE settlement agreements at the same rate as Class 1A*
National Insurance number
A UK individual will be given a National Insurance number shortly before their 16th birthday, or earlier if child benefit is paid for the child. Workers coming from overseas need to apply for a National Insurance number before they can apply for benefits, but a National Insurance number is not a pre-requisite for working in the UK.
An individual must pay National Insurance in the following circumstances:
Aged between 16 and the State Pension age
An employee earning above the primary threshold
Self-employed and making a profit above the lower profits limit (unless you possess an exception)
Individuals who do not fall into the qualifying criteria for making National Insurance contributions may still make voluntary contributions in order to guarantee entitlement to state benefits, such as the State pension, and fill any gaps in their national Insurance contribution record.
Self Employment National Insurance
An individual who is both employed and self-employed will be liable to Class 1 National Insurance on employment income, as well as Class 2 and Class 4 National Insurance on self-employed income. The overall National Insurance contributions will depend on the combined income from all types of employment. We can calculate the correct National Insurance Contributions that are owed, known as the annual maxima, and in some cases, defer paying your National Insurance to avoid overpayment. If you have overpaid National Insurance contributions, we can claim a repayment on your behalf.
An employer must pay National Insurance contributions in the following circumstances:
For employees aged 16 and over
For employees earning above the primary threshold
On the provision of benefits in kind received by employees
On the establishment of PAYE settlement agreements (PSA)
Benefits in kind provided to employees and expenses paid on behalf of employees are liable to Class 1A National Insurance, so long as the company does not hold a dispensation or they have not been provided under a PSA. In which case, the total value of taxable benefits and expenses must be reported to HM Revenue & Customs on form P11D (b) on an annual basis.
There are rules that are unique for company directors on the calculation of National Insurance Contributions due. We can discuss this with you and ensure that National Insurance liabilities are minimised wherever possible.
In relation to National Insurance, we at Stephenson Smart can offer the following assistance:
Application for a small earnings exception for Class 2 National Insurance
Applications for deferment of Class 4 National Insurance
Calculation and submission of form P11D (b) for Class 1A National Insurance
Calculation of maximum National Insurance Contributions due for the year and assistance in claiming a refund of overpaid contributions
If you’re self-employed, let Stephenson Smart save you time by helping with your tax returns.
We can offer a complete solution meeting all filing deadlines with HM Revenue & Customs, while minimising taxation at every possibility.
Our self-employment tax experts can advise on the benefits and pitfalls of various business structures such as sole trade, partnerships, limited liability partnerships or Companies and offer a tailored solution to meet your needs.
We can assist you in every aspect of managing your self-employed business from bookkeeping, automatic enrolment for pensions, real time information filing for payroll, advice on growing your business and completion and submission of self-assessment and partnership tax returns on an individual basis.
We understand that each client and business is different and will work with you to ensure your business achieves its full potential. We have knowledge and experience of working with self-employed individuals in many sectors and in particular we could offer the following services:
Complete tax returns
Calculate any tax liability
Advise on CIS tax returns
Advise you on exactly when to make payments and how much to pay
CIS Tax Returns
The current Construction Industry Scheme (CIS) was introduced to handle the taxes of self-employed contractors within the construction industry. It covers any work carried out within the UK and includes work such as bricklaying, plastering, decorating, and extensions.
If you’ve registered for CIS, your taxation rate will be 20%. If you haven’t registered, it rises 30%. To ensure you’re paying the correct amount of tax, you must complete and submit a CIS tax return. CIS is a complex area and as a result many contractors have overpaid their CIS tax returns in recent years and are due tax rebates. If you think you may be one of them, call us today to speak to one of our advisers.