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NEW TAX YEAR 2022-23. HOW IT AFFECTS YOUR BUSINESS AND PERSONAL FINANCES


The 2022/23 tax year begins on 6th April 2022. We have put this article together to highlight the main changes and other tax matters affecting individuals and businesses.


Income tax

The basic income tax rate remains at 20% but will fall from 20% to 19% by the end of parliament in 2024. This is the first cut to the basic rate for 16 years.

The income tax bands for the 2022/23 tax year are as follows:

· Personal allowance: Up to £12,570 (0% tax rate)

· Basic rate: £12,571 to £50,270 (20% tax rate)

· Higher rate: £50,271 to £150,000 (40% tax rate)

· Additional rate: More than £150,000 (45% tax rate).


Personal Allowance

The Personal Allowance remains at £12,570 for the 2022/23 tax year. The threshold for paying the Higher Rate of income tax remains at £50,270. Both of these thresholds are frozen until 2026.


Income tax threshold

Income tax threshold freeze. In the Spring Statement 2021, the Chancellor announced that the personal allowance and the higher rate threshold would be frozen for the four-year period 2022-23 to 2025-26.


Personal Savings

The band of savings income that is subject to the 0% starting tax rate remains at its current level of £5,000 for the 2021/22 tax year.


The adult ISA annual subscription limit for the 2022/23 tax year remains unchanged at £20,000.


The annual subscription limit for Junior ISAs and Child Trust Funds for the 2022/23 tax year is unchanged at £9,000.


Minimum wage

The National Living Wage (NLW) has risen to £9.50 from 1 April 2022. This represents an increase of 59 pence an hour or 6.6%.


National Insurance Contributions

From 6 April 2022 National Insurance contributions rises by 1.25%. In the spring statement, the Chancellor confirmed these rises would go ahead. However, responding to concerns over the cost of living crisis, he announced that the income threshold at which you start to pay national insurance will rise to £12,570 from 6 July 2022.


Dividend tax

Dividend tax increases. Similarly to the National Insurance rate rises, those who earn money from dividends will also see a 1.25% rise from April 2022.


Dividend Allowance

The Tax-Free Dividend Allowance for the 2022/23 tax year remains at £2,000. Dividend tax rates increased by 1.25% for the 2022/23 tax year to the basic rate of 8.75%, higher rate of 33.75% and additional rate of 39.35%.


Higher-income Child benefit charge threshold

Since January 2013, there has been a clawback charge on the higher earner of a couple where one claims Child Benefit and either has an income over £50,000. This has always been called the ‘High Income Child Benefit Charge’, but now for the first time, it appears that it can apply to a basic rate taxpayer, because there was no mention of a change to the £50,000 threshold, even though the Income Tax higher rate threshold did increase.


State pension

State pension increases by 3.1%: the state pension will increase in April 2022, albeit against a backdrop of rising costs, which will cancel out any real gains.


Personal pensions

The tax-free amount you can pay into a personal pension remains at £40,000 for the 2022/23 tax year. The lifetime allowance for pension savings remains at £1,073,100 and is frozen until 2026.


Capital Gains Tax

The Capital Gains Tax annual exempt amount for individuals remains at £12,300 for the 2022/23 tax year and will be frozen at that level until 2025/26.


Inheritance Tax

There is no change to the Inheritance Tax (IHT) nil rate band, the threshold remains at £325,000 and is frozen at that level until 2026.


Residential property developer tax

The residential property developer tax will apply from 1 April 2022 to profits arising from residential property development recognised in accounting periods ending on or after that date. The tax is likely affect Companies or groups of companies undertaking UK residential property development with annual profits in excess of £25 million.

This measure will introduce a new 4% tax which will apply to the largest residential property developers on the profits they make on UK residential property development.


Corporation Tax

Corporation Tax payable on company profits remains at 19% for the 2022/23 tax year, but the top rate will increase to 25% from April 2023. From then, there will be a new small profits rate of 19% for companies with profits of less than £50,000 with a tapered increase to the rate as profits increase. Businesses with profits over £250,000 will pay the main rate of 25% from April 2023.

The rate of tax to be paid on overdrawn Directors Loan Accounts under s455 of the Corporation Tax Act 2010 is the dividend Higher Rate. From April 2022, the s455 rate will increase from 32.5% to 33.75%.


Impact on director tax-efficient salary recommendations

To maximise the tax efficiency, as a single company Director and Shareholder in the 2022/23 tax year, we would recommend the company should pay a salary of £9,100 and dividends of up to £41,170 taxable at the basic rate of 8.75%. If more income is taken in dividends the excess will pay tax at a higher rate of 33.75% or additional rate of 39.35%.


Annual Investment Allowance (AIA)

The Annual Investment Allowance remains at £1 million until 31 March 2023.


Employment Allowance

Employment Allowance, a relief that allows smaller businesses to reduce their employer National Insurance contributions bills each year, has increased from £4,000 to £5,000.


Corporation Tax Relief business investment tax relief and loss relief for businesses

The super-deduction tax relief allows 130% first-year relief on qualifying main rate plant and machinery investments from 1st April 2021 until 31st March 2023 for limited companies.

The government allows trading losses up to £2 million to be carried back one year without restriction. For accounting periods ending between 1st April 2020 and 31st March 2022, this is extended to three years, with losses required to be set against profits of most recent years first before carry back to earlier years.


Making Tax Digital for VAT.

All VAT-registered businesses must sign up for Making Tax Digital for VAT from 1 April 2022. All businesses registered for VAT must follow the Making Tax Digital (MTD) for VAT rules. This includes businesses that voluntarily registered for VAT and were left out in the initial April 2019 launch of Making Tax Digital for VAT because they were below the £85k threshold.


This guide is for general information only and does not substitute specific advice. You should not rely on it as specific advice and Peria & Co cannot accept any liability for its contents. If you need guidance please contact us at info@peria.co.uk or call us on +44 (0)1932 849023.

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