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What will Self-Assessment tax be for 2022/23? There are usually new UK tax brackets and other updates to thresholds introduced each April. So here are eight Self-Assessment tax changes to understand, from National Insurance hikes to a new plastic packaging tax. 1. What’s the personal allowance 2022/23? The personal allowance in 2022/23 will remain £12,570. This is how much you can earn tax free. The government has frozen this tax allowance until 2026. Businesses and taxpayers in general face rising costs throughout 2022, so could feel the pinch of this personal allowance freeze. And over the long-term, if earnings rise and the personal allowance stays the same, then you’ll pay more in tax. UK tax brackets 2022 the Self-Assessment should know These are the income tax rates and thresholds the self-Assessment should be aware of in 2022/23 (these are the same as 2021/22): basic rate – 20 per cent on income between £12,571 and £50,270 – you pay tax on £37,700 higher rate – 40 per cent on income between £50,271 and £150,000 additional rate– 45 per cent on income above £150,000 2. Increase to the National Insurance tax rate The Self-Assessment usually pay both Class 2 and Class 4 National Insurance through their annual Self-Assessment tax return. Small business owners with staff also need to pay employee National Insurance contributions via payroll. In 2022/23, National Insurance tax rates are increasing by 1.25 percentage points. This is one of the ways the government is hoping to pay for the costs of its coronavirus response. The rise is temporary and will be replaced by the Health and Social Care Levy in 2023. This levy is also 1.25 per cent. The government has announced that National Insurance thresholds will increase from July 2022. This means that you can earn more before you start paying National Insurance. Read more in our Spring Statement update for small businesses. Tax thresholds for Class 2 NICs and Class 4 NICs 2022/23 thresholds 2021/22 thresholds No National Insurance incurred between £0 to £6,724 £0 to £6,514 Small profits threshold for Class 2 NICs £6,725 £6,515 Lower profits limit for Class 4 NICs £9,880 (increasing July 2022) £9,568 Upper profits limit £50,270 £50,270 Employer and employee National Insurance contributions (Class 1) If you’re an employer, or also have income from employment, here are the Class 1 National Insurance tax thresholds. Tax thresholds for Class 1 (primary) National Insurance 2022/23 weekly threshold 2022/23 annual threshold Lower earnings limit £123 £6,396 Primary threshold £190 (increasing July 2022) £9,880 (increasing July 2022) Upper earnings limit £967 £50,270 Earnings above the primary threshold incur NICs at 13.25 per cent in 2022/23 (12 per cent in 2021/22). Earnings above the upper earnings limit incur NICs at 3.25 per cent in 2022/23 (two per cent in 2021/22). Tax thresholds for Class 1 (secondary) National Insurance Employer NICs are due on annual salary payments to employees above a certain threshold. This is £9,100 in 2022/23 (a weekly threshold of £175). This increases from £8,840 in 2021/22. The rate is 15.05 per cent in 2022/23 (up from 13.8 per cent in 2021/22). National Insurance is also due at this rate on any work benefits you give employees. 3. Changes to wage rates for employers Rate from April 2022 Previous rate National living wage £9.50 £8.91 Rate for 21-22 year olds £9.18 £8.36 Rate for 18-20 year olds £6.83 £6.56 Rate for 16-17 year olds £4.81 £4.62 Apprentice rate £4.81 £4.30 4. Tax rates for dividends in 2022/23 Not only are National Insurance rates rising, the dividend tax rate is increasing too. This is another measure designed to help pay for the government’s coronavirus response. It’s increasing by 1.25 percentage points, so you’ll pay dividend tax on the dividends you earn above £2,000 (the dividend allowance) at these rates: basic rate taxpayers – 8.75 per cent (up from 7.5 per cent) higher rate taxpayers – 33.75 per cent (up from 32.5 per cent) additional rate taxpayers – 39.35 per cent (up from 38.1 per cent) 5. Making Tax Digital extended to all VAT-registered businesses Making Tax Digital has been in place since 2019 for VAT-registered businesses with a taxable turnover of more than £85,000. This system requires businesses to keep digital records and file VAT returns digitally. Businesses need to use relevant accounting software. The next phase of Making Tax Digital is starting in April 2022. It removes the turnover threshold, meaning all VAT-registered businesses will need to use the system. Eventually all taxpayers will need to use Making Tax Digital, but it won’t apply for Self-Assessment returns until at least 2025. Read more about Making Tax Digital. 6. More time to understand points-based tax penalties While a new points-based system for tax penalties was due to start in April 2022, it’s been delayed until January 2023. The new penalties were supposed to launch for VAT alongside Making Tax Digital’s rollout to all VAT-registered businesses in April, but HMRC’s systems won’t be ready in time. As the new points-based penalties have been postponed, businesses have more time to get up to speed with the changes. 7. A new tax introduced for 2022 If you manufacture or import plastic packaging as part of your business, you may be subject to the new plastic packaging tax from April 2022. According to gov.uk, it applies “if you’ve manufactured or imported 10 or more tonnes of finished plastic packaging components within the last 12 months, or will do so in the next 30 days.” If you meet either of those thresholds, then you need to register for the tax. Read more about the plastic packaging tax. 8. Business rates discount While businesses face rising costs and tax increases, there’s some good news for retail, hospitality and leisure businesses. As announced at the Autumn Budget, they’ll get a 50 per cent discount on their business rates, up to £110,000 per business. An increase to business rate multipliers has also been paused for 2022/23. However, this discount is still reduced from a previous discount of 66 per cent, to help business struggling with lockdown. This discount should be automatically administered by local authorities. Other UK tax brackets 2022 the capital gains tax

As a contractor, IR35 will have been on your radar for the past two years and making sure that everything you do is IR35 compliant is high on your priorities. If you are self-employed, it is important to know where you stand with IR35. In short, IR35 is the name given to the rules surrounding off-payroll working. It is in place to assess whether someone should be paying tax as an employee or as self-employed. It was created to ensure people weren’t unknowingly operating as self-employed when they should be paying tax as an employee. The consequences of getting it wrong can be very serious. It’s important to keep on top of the legislation and understand the terminology. As well as explore options which you may have read elsewhere What does inside and outside IR35 mean? IR35 is a piece of tax legislation which looks to determine a genuine business from what is called a “disguised employee”. It targets limited company contractors who may be working as an employee of their end client rather than providing a genuine business to business service. IR35 legislation seeks to reclaim the additional PAYE tax and NICs that they would have paid as an employee. When explaining IR35, people often use terms “inside” and “outside” IR35. This indicates your IR35 status as being a genuine contractor (outside) or an employee for tax purposes (inside). The terms reflect whether you are operating within the legislation’s scope or not: The meaning of Inside IR35 –        To be ‘inside IR35’ means that you are considered, for tax purposes, an employee of your end client and therefore subject to PAYE. –        If you are operating ‘inside IR35’, you need to ensure that the appropriate taxes are being paid. –        This usually involves a ‘deemed payment’ of income tax being made at the end of the tax year, which your accountant will help you with. You should ensure that your status is reassessed in the event of a change in your working practices, and/or when you begin a new contract. –        If engaged to the public sector or medium-large private sector business, the fee-payer (usually recruitment agency) will be required to deduct your tax and NICs at source. If you find yourself under investigation and an IR35 enquiry finds you ‘inside IR35’, HMRC will raise a determination for the income tax, NICs and interest that should have been paid during the period in question, as well as a potential penalty. This can run into the tens of thousands of pounds. Am I inside or outside IR35? For both public sector contractors and private sector contractors providing services to medium-large organisations, your end client is responsible for determining your status. They will likely use the CEST tool from HMRC to determine this, or an independent service. If you find yourself contracting for a client who simply places their contractors inside IR35 to avoid admin or liability concerns associated with the rules, this is not compliant with the legislation. Others place contractors based on their role, such as determining that all nurses are ‘inside’ IR35. Although HMRC has deemed this appropriate, it is fraught with issues when it comes to compliance with the legislation. For private sector contractors working for small end clients, you remain responsible for your status. If you do need any assistance in determining your compliance, Account-Ease can help. We work with partners who offer an IR35 Review which includes: A consultation with experts who will advise you on your position regarding IR35. A quick, conclusive status result with all the support needed to guide you through the reform. A comprehensive report that pulls through the notable positives or negatives of your engagement. By obtaining an independent status review you are showing that you are taking due diligence in understanding your IR35 status. At Account-Ease, and in partnership with Kingsbridge, we’re pleased to provide a comprehensive IR35 review service for contractors. The way you provide your services is crucial. Whilst HMRC usually begin an enquiry by looking at the contractual terms. They will seek to clarify the terms directly with the end client. If your contract does not reflect reality. Any positive elements of the agreement would have very little bearing in an IR35 enquiry. You should therefore always consider a review of your working practices when determining your status. Can contractors band together to work via small consultancies to bypass IR35? Recently, some contractors have read online about structuring a ‘consultancy’ to bypass IR35 legislation. The hope is that such a structure puts beyond doubt that ‘personal service’ is not required and so the IR35 rules of April 2021 are unlikely to apply. The IR35 regime investigates the contractual nature of the relationship between a worker and the end-user. This is to establish whether a contract of employment would exist between them in the absence of the intermediary. The nature of the relationship (whether employee, worker or contractor/freelance) impacts a range of variables. Including the legal protections enjoyed and how earnings are taxed. One of the main benefits of working as a freelancer as opposed to being an employee is that a freelancer has the freedom to sort their tax affairs more tax-efficiently than a conventional employee. HMRC has become increasingly aggressive in its attempts to investigate the tax affairs of purported freelancers in the past few years. This is to examine whether they are genuinely freelancers, or are ‘disguised employees’. This scrutiny is to recoup any tax or national insurance contributions that freelancers have avoided paying. As HMRC have intervened in the tax affairs of freelancers, especially high-profile TV personalities, freelancers have adjusted their position to try and better protect themselves from HMRC’s investigations. One adjustment made by freelancers is to ‘band together’ to form small consultancy businesses. The aim of which would be to argue that they are exempt from IR35 rules. “Because the consultancy is small and they charge for services rendered rather than labour supplied”. Forming consultancy Forming consultancy companies could mean

Millions of workers in the UK will get a pay rise this week when a change to National Insurance (NI) kicks in. From today (6 July). The National Insurance threshold has increased to match the income tax personal allowance, rising from £9,880 to £12,570. The majority of workers however are unlikely to see the rise in July wage packets. As they are usually paid in arrears, although those paid in advance will see it this month. Who will benefit from the allowance rise? Since April, employees have paid 13.25 per cent in contributions on any earnings between £9,880 and £50,000, and 3.25 per cent on everything over £50,000. The move was introduced by former Chancellor Rishi Sunak, as a one-year levy to fund social care in the UK. The NI threshold rise means a pay hike for around 30 million people and at the same time, just over two million on low earnings will be exempt. A typical employee will save more than £330 in the year from July, according to the Government. What happens in 2023? The move is designed to lessen the impact of the 1.25 percentage point rise in employee NI in April. Anyone earning less than around £35,000 will see their pay packet return to roughly the same level. It was before April, but higher earners will still pay more in NI contributions than they did in March. Someone on £30,000 would have paid around £204 per month before April. Then rising to £222, and they will now see this fall to around £192. From next April, the 1.25 percentage point increase will be replaced by a new Health and Social Care Levy, a new tax in its own right, and separate to NI which will return to its previous level. How much will working pensioners pay? At that point, the Health and Social Care Levy is also due to be applied to the earnings of those above the state pension age. Pensioners who are still working after the state pension age (currently 66) don’t pay national insurance. However, from April 2023 the new levy will be deducted from their earnings. For help and advice on NI and other tax matters, contact our team today.