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Budget 2022 – What’s its purpose?

The latest Budget is going to be painful and will be felt by all. It had to be aggressive to deal with the two biggest issues facing the UK – inflation and the collapse in confidence in the UK economy.

We summarise below the main announcements that we believe will be affecting our clients:

Income Tax (main changes)

  • The tax rates and personal allowances will remain the same, but their value would be eroded with inflation
  • The additional rate of tax of 45% will start on earnings above £125,000 – the net increase of tax for taxpayers at this rate will be about £25 per week

National Insurance

  • The NI rates and thresholds are largely frozen, like the tax rates and because of wage inflation, more NI would be collected by HMRC

Dividend Tax and Allowance

  • Increase in dividend tax was already announced and has taken place from April 2022. The new rates being – 8.75% basic rate, 33.75% higher rate and 39.35% additional rate
  • However, the new announcement reduces the 0% dividend tax bands from £2,000 to £1,000 from April 2023 and £500 from April 2024. This will be felt by many who have small investment portfolios, such as pensioners

Corporation Tax

  • Currently, all companies pay corporation tax at 19%. From April 2023, this will change
  • Small companies earning less than £50,000 will pay at 19% and companies earning over £250,000 will pay 25%
  • Shockingly, the tax paid by companies earning between £50,000 to £250,000 will be paying at the marginal rate of 26.5%!
  • Unexpected Tax – it may not be readily appreciated that additional tax will be experienced by companies in a group, as the £50,000 / £250,000 thresholds will be reduced by the number of companies in that group!

Capital Gains Tax

  • The Capital Gains Tax rates will remain the same
  • However, the annual exemption allowance, where you do not pay any tax will be reduced from £12,300 to £6,000 from April 2023 and £3,000 from April 2024

Other Business Allowances

  • Businesses that are entitled to capital allowances will continue to get 100% tax relief for investment in plant and machinery used in their trade and will be available for expenditure up to £1m – Annual Investment Allowance
  • For businesses that have expenditure qualifying for Research & Development credits will see the current rate of additional deduction credit of 130% reduced to 86% from April 2023, the SME credit rate falls from 14.5% to 10% from April 2023. However, R&D credit rises from 13% to 20%

VAT

  • The VAT registration limit will remain at £85,000 will remain until April 2024 and because of rising prices, it is expected that many more businesses will become VAT registrable.