Increase in National Insurance thresholds

In the Spring Statement 2022, the UK Government announced an increase in National Insurance thresholds affecting the 2022 to 2023 tax year.

We want to take the opportunity to remind our clients that the threshold changes will take effect from 6 July 2022, meaning employees will pay National Insurance contributions on less of their income.

The primary threshold from 6 July 2022 to 5 April 2023 will be £242 per week and £1,048 per month, equivalent to £12,570 per year (increased from £9,880 per year). See the guidance Rates and thresholds for employers 2022 to 2023, ‘Class 1 National Insurance thresholds’ for further information.

The National Insurance lower profits limit for self-employed people has also increased in line with the changes for employees. The annual lower profits limit is now set to £11,908 for 2022 to 2023. This is equivalent to 13 weeks of the threshold at £9,880 and 39 weeks at £12,570, mirroring the position for employees. Self-employed people are also no longer required to pay Class 2 National Insurance contributions on profits between the Small Profits threshold (£6,725) and Lower Profits limit (£11,908), but they are still able to build National Insurance credits.

Please contact us about these changes – we are here to help!

Prepare your payroll for the National Insurance changes in July 2022

From 6 July 2022, some National Insurance Contributions (NICs) thresholds will increase. The primary threshold for 6 July 2022 to 5 April 2023 will rise to:

● £242 per week

● £1,048 per month

● £12,570 per year

See Class 1 National Insurance thresholds for 2022 to 2023.

To accommodate this change, payroll software, including HMRC's Basic PAYE Tools, will need to be updated. This may happen automatically, or you might need to take action.

It is important that payments due to be made on 6 July 2022 or later are calculated using the correct thresholds. Employers who run their payroll early should check that their software has been updated before processing and reporting these payments.

HMRC expect that all software will be updated by 6 July 2022, so any payments processed after that date should not need to be delayed. If you are unsure about whether or not your software has been updated, please contact your software provider.

If you use Basic PAYE Tools, please note that this software will be updated to take account of National Insurance threshold increases from 4 July 2022. HMRC advise you to wait until after 4 July 2022 to run payroll for any payments made on or after 6 July 2022.

Please talk to us about these changes and how we can help you with your payroll.

See: Rates and thresholds for employers 2022 to 2023 - GOV.UK (www.gov.uk)

National Insurance relief when hiring veterans

Under a new scheme, businesses hiring military veterans can save thousands of pounds in employer National Insurance Contributions (NICs). From 6 April 2022, employers do not have to pay NICs for veterans in their first year of civilian employment after leaving the armed forces.

Businesses are also able to claim this relief retrospectively for any qualifying employees who they employed in the last 12 months.

The relief is available to all employers of veterans, regardless of when the veteran left the regular armed forces, providing that they have not been employed in a civilian capacity since leaving service. The relief will be available to all qualifying veterans each time they leave HM Armed Forces.

See: Government urges businesses to take advantage of National Insurance relief when hiring veterans (https://www.gov.uk/government/news/government-urges-businesses-to-take-advantage-of-national-insurance-relief-when-hiring-veterans)

Inflation, tax rises – and the family budget

Apart from the human cost, covid has cost us all a great deal. In the first year of the pandemic, from April 2020 to 2021, the government borrowed £299bn, the highest figure since records began in 1946. Another £200bn will be needed this year, and as taxpayers, we will be paying for it all.

But the covid costs don’t stop there. The low interest rates vital to restart the economy are also helping to restart inflation.

So, what does this all mean for the family budget?

Inflation is back

Inflation is a measure of rising prices and affects what you can buy for your money. Covid and lockdown reduced economic activity, eliminating the inflationary pressures that were becoming a worry at the beginning of 2020. The cost of some goods fell early in the pandemic in response to a collapse in demand.

Now, as the economy starts to recover, pent-up demand and supply chain bottlenecks are already creating severe price pressures. There are already shortages in some key sectors such as semiconductors. Scarcity inevitably means price increases.

It looks as though the process of inflation has already begun, when earlier in the year, inflation data was released the figures were higher than expected, passing the 2% mark. Now it is forecast to potentially increase to over 5% by 2022, well above the Bank of England’s 2% target. The typical household spent just over £20,000 in 2019, the last pre-Covid year, according to the Office for National Statistics (ONS). Inflation rises would push up the bill for those same goods and services substantially.

National insurance and taxes are going up

National insurance contributions (NICs) paid by both employed and self-employed workers will rise by 1.25% in a bid to help fund health and social care costs. From 2023, the health and social care levy element will then be separated out and the exact amount employees pay will be visible on their pay slips. It will be paid by all working adults, including workers over the state pension age – unlike other NICs. This means an employed basic rate taxpayer earning £24,100 a year would contribute an extra £180, while a higher rate taxpayer earning the median higher rate taxpayer’s income of £67,100 a year would pay £715.

In the March Budget there were minor increases to the £12,500 - and £50,000 - income tax thresholds to £12,570 and £50,270 respectively but these are frozen until 2026. These thresholds – which determine how much a person can earn before paying income tax, and who will pay at the higher 40% rate – usually rise with inflation, now they will not. So, we could all be paying more tax over the next 5 years.

All these increases add up to increased pressure on the family budget with higher prices and more taxes. Wages may be on the up – but probably not by enough to compensate for the added costs and tax rises.

Please talk to us about planning ahead because with some help you may be able to make your money work harder for you and reduce the amount the taxman can take.

Your financial plans may need a fresh look, and you may need an expert to help you. We are ready to provide all the help you need.

Planning Actions Before Increase in National Insurance and Tax on Dividends

With the announcement of the proposed 1.25% increase in National Insurance and tax on Dividends more than six months before they take effect mean that there is time to reduce the impact.

Employees could consider agreeing a salary sacrifice arrangement with their employer, for example sacrificing their £5,000 annual bonus for an additional pension contribution paid by their employer. Such an arrangement would save 1.25% NICs for both employee and employer as well as £2,000 income tax where the employee is a higher rate taxpayer.

Employees might also consider a salary sacrifice in favour of an electric company car.

Shareholder/directors of family companies could consider bringing forward dividend payments to before 6 April 2022. Such a strategy needs careful planning as if the extra dividend takes the taxpayer’s income above £50,270 the excess would be taxable at the 32.5% rate instead of the 7.5% rate and the planning could backfire.

Further Details on Proposed NIC and Dividend Tax Rates

Following last weeks announcement, the Government has published further details on the proposed National Insurance and dividend tax rate increases. It is proposed that there will be a 1.25% rise in National Insurance Contributions (NICs) from April 2022 paid by both employers and workers and will then become a separate tax on earned income from 2023 - calculated in the same way as NIC and appearing on an employee's payslip. Note that the 1.25% increase applies to the Class 4 contributions paid by the self-employed on their profits as well as the Class 1 contributions paid by employees increasing the rates to 10.25% and 13.25%. The employers Class 1 rate will increase from 12.8% to 14.05% however many small businesses are able to set off a £4,000 employment allowance against their employers NIC liability.

Many workers operating through personal service companies to whom the new “off-payroll” working rules apply will also be caught by the proposed measures.

The 1.25% additional levy doesn’t just apply to national insurance contributions, it is proposed that the income from share dividends, earned by those who own shares in companies, will also see a 1.25% tax increase. This would mean that after the £2,000 tax free dividend allowance the rate of tax would be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for those with income in excess of £150,000 a year.

Details of the proposals are set out in the following document: 6.7688_CO_Command paper cover_060921 (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1015736/Build_Back_Better-_Our_Plan_for_Health_and_Social_Care.pdf)

National Insurance and tax on dividends to rise by 1.25%

This week, the government has announced that it plans to increase National Insurance Contributions by 1.25% and tax on dividends by 1.25%. 

We are told the rise is part of the Governments social care plan. The increase will come into effect from April 2022.

We will provide a detailed analysis once we have more information.

National Insurance for workers from the UK working in the EEA or Switzerland

Individuals who are employees or self-employed, pay social security contributions depending on their personal circumstances and the country they are going to work in.

The liability of the employer to pay social security contributions will follow the liability of their employees.

If you go to work in:

• the EU, you’ll only have to pay into one country’s social security scheme at a time
• Iceland, Norway or Switzerland, you may only have to pay into one country’s social security scheme at a time

This will usually be in the country where the work is being done.

In the UK, social security contributions are called National Insurance contributions.

Individuals continue to pay National Insurance contributions only in the UK if HMRC has issued you with the relevant certificate as evidence that this is the case.

You, or your employer, should apply for a certificate if you’re:

• going to work temporarily in the EU for up to 2 years
• a worker working in the UK and one or more EU countries
• a civil servant working for the UK government
• working onboard a vessel at sea, with a UK flag
• working as a flight or cabin crew member, where your home base is in the UK

For more details see the recently updated HMRC guidance:

See: National Insurance for workers from the UK working in the EEA or Switzerland - https://www.gov.uk/guidance/national-insurance-for-workers-from-the-uk-working-in-the-eea-or-switzerland

30th April 2021 – Hillmans Weekly Update

Below I have summarised all the main tax related updates we have seen this week.

• Business News Update
• No Employers NICs for a year if you hire ex-military staff
• Fourth round of SEISS grants have now opened up to the public
• Paying back VAT deferred due to coronavirus

If you have any queries about this week’s content, or if you need any assistance please do not hesitate to contact me.

I hope you have a good bank holiday weekend.

Stay safe and well.

Cheers,

Steve

Steven Hillman BSc (Hons) ACA
Chartered Accountant
Tel: 01934 444100

No Employers NICs for a year if you hire ex-military staff

National Insurance “Holiday” if You Hire Military Veterans

HMRC have provided guidance on this new incentive designed to encourage employers to take on military veterans. This relief is only available for 12 consecutive months from the veteran’s first day of civilian employment. This zero-rate can be applied up to the upper secondary threshold (£967 per week). This relief is available from 6 April 2021. For the 2021/22 tax year employers will need to pay the associated secondary Class 1 National Insurance contributions as normal and then claim it back retrospectively from April 2022 onwards. From April 2022 onwards, employers will be able to apply the relief in real time through PAYE.

Qualifying veterans

Employers will only be able to claim National Insurance contributions relief on the earnings of qualifying veterans. A person qualifies as a veteran if they have served at least one day in the regular armed forces. This includes anyone who has completed at least one day of basic training.

The relief is available to all employers of veterans regardless of when the veteran left the regular armed forces, providing they have not previously been employed in a civilian capacity.

Employments that qualify

Relief is available for any civilian employment. A civilian employment is one that is not part of the armed forces and includes employments with organisations that may have strong links to HM Armed Forces, such as the Ministry of Defence or NATO. Employment with a reserve organisation is not considered as civilian for the purpose of this relief and does not trigger the qualifying period (outlined below).

Employers can claim relief even if the employment starts before 6 April 2021 but will only be able to claim for the remaining 12 month qualifying period. The first day of employment will be the start date taken from the employment contract between the employer and the employee.

This 12 month period does not change if the employment finishes. This means that current and future employers can also claim this relief if they employ a veteran within their qualifying period. Subsequent employers must determine the first day of the veteran’s first civilian employment and confirm that the veteran is employed with their business during the qualifying period.

19th March 2021 – Hillmans Weekly Update

Below I have summarised all the main tax related updates we have seen this week.

• 22nd March Email Reply Deadline - SEISS Grant
• Local Restrictions Support Grant (for Open Businesses)
• Closed Businesses Lockdown Payment and Local Restrictions Support Grant
• Advisory Fuel Rate for Company Cars
• 2021/22 National Insurance Bands

If you have any queries about this week’s content, or if you need any assistance please do not hesitate to contact me.

I hope you have a good weekend.

Stay safe and well.

Cheers,

Steve

Steven Hillman BSc (Hons) ACA
Chartered Accountant
Tel: 01934 444100

2021/22 National Insurance Bands

The thresholds for employee and employer national insurance contributions (NICs) have been increased by £1 a week for the 2021/22 tax year. Employees will be liable to 12% NICs between £184 and £967 a week (£50,270 a year). Employer contributions will start at £170 a week.

The self-employed will pay 9% Class 4 NICs on profits between £9,570 and £50,270.

The higher rate tax threshold for 2021/22 will be aligned with the £50,270 NIC upper earnings limit and the personal allowance will be uprated by the same percentage to £12,570 for 2021/22. 

What to do if you’re employed and cannot work – guidance for employees

The Department for Work and Pensions has updated its guidance for employees if they are employed and cannot work.

In addition to the Furlough scheme it details that employees might also be able to get:

• New Style Jobseeker’s Allowance (JSA) if you’re under State Pension age, you usually work less than 16 hours a week and have made enough National Insurance contributions over the last 2 to 3 years.
• Universal Credit if you or your partner are under State Pension age and you have less than £16,000 in savings – you might be able to get it at the same time as New Style JSA.
• Pension Credit if both you and your partner have reached State Pension age.

See: https://www.gov.uk/guidance/coronavirus-covid-19-what-to-do-if-youre-employed-and-cannot-work

Certain Property Business Owners are Liable to Class 2 NICs

Class 2 National Insurance Contributions (NICs) are currently paid at the rate of £3.05 per week by self-employed earners. A person who is liable to Income Tax on the profits arising from the receipt of property rental income will only be a self-employed earner for NICs purposes if the level of activities carried out amounts to running a business.

HMRC have recently issued clarification which states that in order for a property owner to be a self-employed earner, their property management activities must extend beyond those generally associated with being a landlord which include, but are not limited to, the following:-

• undertaking or arranging for external and internal repairs
• preparing the property between lets
• advertising for tenants and arranging tenancy agreements
• generally maintaining common areas in multi-occupancy properties; or
• collecting rents.

The HMRC guidance suggests that the ownership of multiple properties, actively looking to acquire further properties to let, and the letting of property being the property owner’s main occupation could be pointers towards there being a business for NICs purposes.

A landlord will also be a self-employed earner if any of their activities amount to a trade for Income Tax purposes. This could include, for example, receiving income from other services provided to tenants.

April 2016 Tax Tips & News

Welcome to April's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.

Please contact us for advice in your own specific circumstances. We're here to help!

April 2016

· OTS recommends simplifications for small companies

· Close alignment of income tax and NICS

· National minimum wage increases announced

· Guidance on SDLT Budget reforms

· April Questions and Answers

· April Key Tax Dates

Budget March 2015

Summary

This was a forward-looking Budget, with much of the content based on the assumption that the current Government will pick up where it left off, after the General Election on 7 May 2015.

The sweeteners for voters include; a cut in duty on beer, cider and sprites, including whisky. The tax on road fuel is frozen, but the tax and NI charges for having the private use of a company car or van are set to increase above the levels which had already been predicted.

There are two changes to entrepreneurs' relief which take effect immediately, but those should not affect people who are selling significant stakes in their businesses.

For the future the Chancellor promised to increase the tax-free personal allowance up to £11,000 and introduce a new tax-free savings allowance of £1,000, but not until April 2016 at the earliest. Class 2 NIC is set to be combined with Class 4 NIC, which will be a simplification for the self-employed.

The promised abolition of annual tax returns to be replaced by an online tax account may sound attractive, but HMRC's track-record of mixing up figures submitted under RTI does not bode well for such an ambitious project.

We have organised the coverage below into future promises, which can only happen after the General Election, and immediate changes which take effect from 18 March 2015, or from April 2015.

This newsletter is a summary of the key tax points from the Budget, based on the documents released on 18 March 2015. It is possible that a different position will be shown by the draft legislation which is due to be published on 24 March 2015. We will keep you informed of any significant developments.

eNews - November 2014

Pensions Death Tax

Currently if you die before you have started to draw your pension, the value of your pension fund will not usually be subject to inheritance tax (IHT) at 40%, as it is excluded from your estate. However, there can be a 55% tax charge where your pension fund is passed to someone else under your will, especially if you die aged over 75.