With the new tax year starting this week, lots of changes are already happening in the financial space that you need to be aware of.
Contractors and freelancers should stay on top of the latest industry news, and at Gorilla Accounting, we pride ourselves in delivering this information, especially as a new tax year begins.
At Gorilla, we’re a specialist accountancy firm for Contractors, Freelancers and Locums operating as Limited, or as a Sole Trader.
The end of the tax year is 5th April 2022, with the new 2022/23 tax year beginning on the 6th.
These dates have not changed for over 200 years, and happen on these dates regardless of weekends or Bank Holidays here in the UK. It actually originates from when people in England had to pay rent to their landlord, which was done on a quarterly basis – 25 March, 24 June, 29 September and 25 December.
Given the March date was the first one of the new year, it came to be regarded as the beginning of the financial year.
This system has been criticised by many and a Government review took place in September 2021 after many people preferred it to be moved to match the calendar year, ending on 31st December, bringing it inline with the US tax year. However, it would come at a significant cost, meaning for now, the 6th April sticks.
What does the start of the new financial year mean for taxes?
Firstly, let’s look at how this new financial year affects taxes. To add to the confusion, not all tax changes have coincided with the new tax year in 2022.
Council tax has already changed on 1st April, and state pensions and benefits, like Universal Credit and Child Benefit, are not changing until the 11th April.
If you are a self-employed sole trader, you may have received a letter from HMRC requiring you to fill out a tax return. This is if you have earned over £1,000 (before tax relief deductions) during the last 12 months. You also have to do one if you were a partner in a business partnership in the 2021/22 tax year.
If you’re required to do a tax return, you’ll have until 31st January 2023 to complete it (or 31st October 2022 if you do it in paper format). Failure to do so sees interest added to the tax you owe from 1st February and a £100 late fine if you don’t file it until after 31st January 2023.
If you have just become self-employed for the first time, and this is new territory for you, you have to register with HMRC for tax and National Insurance purposes. Having a good accountant by your side can make sure you do not miss any deadlines for this, but in short, you need to start collecting receipts and bank statements from 6th April, ready to fill in your tax return for the year.
2022 – What is changing
Lots of changes have already come in so far in April, with the Ofgem energy price cap and other bill rises occurring from April 1st (or what the media has dubbed ‘Bleak Friday’).
As the new tax year starts, there are even more rises including council tax, water bills, travel and even stamps. With rising energy prices and inflation, most people will be worse off.
Changes in the tax system that come into play this week are also going to impact many people, but have gained a lot less attention in the press.
Let’s take a look:
National insurance and dividend tax
From Wednesday, there will be a controversial rise in NICs. According to the government, this increase is to help fund social care and the NHS.
Under the changes, both the employed and self-employed will pay 1.25p more to the pound. On top of this, employees will be charged 13.25% on earnings between £9,880 and £50,270 and 3.25% on income above that.
It is also worth noting that for the self-employed, class 4 contributions will rise to 10.25% and 3.25%.
However, come July there is respite for some as the threshold at which NICs start to be paid will rise from £9,880 to £12,570. Those earning up to £50,270 will be overall better off than they were in the last tax year, however their pay will dip first. If your income exceeds that figure, you will still be worse off than in the 2021/22 tax year.
For an employed worker earning £50,000, the effect of the two changes will be a decrease in take-home pay of about £200 a year – not great news given the rise of electricity and gas bills for a typical household will increase by 53% from this month, amounting to £693 a year.
Income tax allowances
In last year’s budget, Rishi Sunak announced that the personal allowance threshold would remain unchanged until 2026, instead of rising in line with inflation.
Because of this, tax-free personal allowance remains at £12,570 this year.
Anything above that threshold is when the 20% income tax comes into force.
The threshold for higher-rate income tax is still £50,270. This is when workers start paying 40% tax in England, Wales and Northern Ireland, up to £150k, and then 45% above £150k. This will bring millions more workers into the tax bracket as they get pay rises, meaning if your employer has given you a pay rise, you may end up with a lot less than expected.
Water bill increase
With such a focus on the cost of energy prices rising, it seems to have slipped under the net that water bills are increasing too.
Overall, bills have gone up by 1.7% in England and Wales, pushing up the average annual cost by £7 to £419, according to Water UK. There are however wide regional differences, so it’s worth checking with your own water board when you receive your next bill.
Council tax
Councils around the country have raised bills, with the average Band D demand going up by 3.5% to £1,966 a year – a £68 increase on last year. Martin Lewis has called for homeowners to ensure they are in the correct tax bracket and to challenge it if not.
The government has offered a council tax rebate for people who live in tax bands A-D, which will land in your bank account this month if you pay via direct debit. This is to help offset some of the rising living costs.
Stamps
If you own your own business, you probably regularly use stamps to send out letters.
However, because of the long-term decline in postage, with many opting for electrical ways of contacting businesses, customers and in their personal lives, coupled with the rise of inflation, the price of stamps is increasing from this week.
If this is something that will affect you, you need to be aware that a first-class stamp is rising by a huge 10p, up to 95p and a second-class stamp is going up 2p, to 68p.
Business travel
Thankfully, the cost of petrol is coming down, with the Chancellor announcing that fuel duty will be cut by 5p per litre immediately in his Spring Budget.
However, if you regularly fly long-distance, either for work or pleasure, due to the pandemic, there are rises in air passenger duty. The rate for long-haul economy flights will go up by £2, while premium economy and higher will increase by £5 from Wednesday.
Although it probably won’t affect you hugely if it’s long haul flights once or twice a year for holidays, if you are a regular business traveller, it can all add up.
HMRC handed £161m funding boost to enforce tax compliance
With changes happening this week already, you should be aware that the HMRC have been given funding to help tackle tax non-compliance.
The chancellor announced a funding and resource boost worth £161m, which will give funding for tax investigations, bringing in a forecast of £3 billion of additional tax revenue for the Treasury.
Rishi Sunak announced that the government will invest £161 million over the next five years to “increase compliance and debt management capacity in HMRC.”
Sunak explained: “By funding additional HMRC staff to provide greater support to taxpayers seeking to pay off accrued tax debts, and to tackle the most complex tax risks, ensuring large and mid-sized businesses pay the tax they owe.”
The investment coincides with the IR35 ‘soft landing’. According to research, tax investigations into large businesses brought in £69 extra per pound spent on staff costs to carry it out. That results in a huge 6,800% return on investment. Wealthy and medium-sized businesses brought in an additional £29 per pound spent, while self-employed individuals and small businesses brought in an extra £11 per pound spent.
The IR35 reform has seen HMRC be able to issue penalties (in addition to tax bills) to private sector businesses for non-compliance. IR35 reform allows HMRC to be more effective in ensuring compliance. Some do argue that the complexity of IR35 makes it difficult to enforce.
So, what do I need to do this week?
Your accountant should have everything in hand ready for the new tax year, however if you do feel as though you’re not being looked after, Gorilla Accounting can help.
Your accountant should be helping you save time and money in the day to day running of your business by supporting you with stressful tasks and realising tax benefits on your behalf. These include matters related to HMRC, tax, payroll, bookkeeping and auditing.
At Gorilla, we offer a market leading service that cannot be disputed – just check our Trustpilot and Feefo reviews!
If you’re not getting the same level of service, it may be time to switch accountants.
The best time to switch accountants is at your company year-end, or before the new tax year, but it is possible to switch accountants at any time during the year. We take on new clients every day, throughout the year.
It doesn’t need to be a stressful, disruptive or costly process. We can provide all the knowledge you need to switch accountants seamlessly. If you’re thinking twice, you can read all about switching accounts here.
Speak to Gorilla today by filling in our online form, or calling us on 0330 107 9676.
