Hi there,

You may have seen the news that NIC rates are increasing next year (April 2022), but may not have picked up on the dividend tax rate increase. Ostensibly to "maintain a level playing field", this represents another tax increase on Owner Managed Businesses, many of whom did not get any assistance through COVID.

The headlines have focussed on the employed and employers, but rates are rising for the self-employed as well, many of whom also did not receive support.

While the headline increase is "only" 1.5%, the effective rate of increase is much higher. For a basic rate taxpayer running their own company, your tax payments could rise by 16.67%, or one sixth. A higher rate payer would see their tax payments rise by nearly 4%.

So what can you do about this?

We will be contacting all affected clients to discuss the options, but here are a few to consider:

1. Is is worth advancing income into the current year by voting dividends earlier? It will bring forward tax payments but at a lower level.

2. Salary sacrifice arrangements will become more valuable. Could you arrange for your company to take on any contract that you currently pay privately, for example your mobile phone?
3. Could you spread the dividend payments among family members, perhaps using their tax allowances?

Of course, there are rules and regulations to comply with, and getting it wrong could cost you in fines and interest on late paid tax and NIC, so speak to us before you implement any planning.

And What about MTD for ITSA?
What? you may well ask.

The Government have finally pushed forward on their Making Tax Digital agenda. At present, they want to move almost everyone to a quarterly filing regime from April 2023 (with the rest of VAT registered traders "going digital" from April next year).

To facilitate that, they are planning to make changes to the accounting date rules that will affect (in their estimate) around 1% of businesses. Currently, our profession is making representations and looking to defer the start date as we doubt HMRC's software will be ready in time. There are other proposed changes (to tax year ends) that also need to be thought through in more detail.

We'll send a more detailed update once we know what the timeframe and draft law looks like, but wanted you to know we are "on the case", as we are starting to see a lot of commentary on this.

We'll be in touch to set up a meeting to discuss these changes over the next few months, but if you'd like to take early action, please let us know.

Looking forward to seeing you in person over the next few months.

Steve & the team

If you'd like a copy of our internal briefing on MTD ITSA, click here
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