Welcome to the May newsletter, longer days and hopefully warmer weather.
This month’s spring news includes a clarification of the impact of the increased NI contributions on shareholder dividends. You can also see how the change in Employment Allowance might affect your business – this is particularly relevant to micro and small businesses. We have a short piece on claiming mileage on business journeys if you run a private car for both leisure and work purposes. You can read about the Online Safety Bill and Online Media Literary Strategy Bills which both comprise some new internet laws being introduced by the government. Businesses should be mindful of the changes to online safety which is being put in place to protect consumers from potentially harmful business posts on social media, websites and apps.
Dividends hit by NIC increase
Dividends are a distribution of company profits to shareholders. Historically, they have been taxed as unearned income – no National Insurance deductions.
This is still the case, but the Treasury have decided that the recent increase of 1.25% in National Insurance rates will also apply to dividends.
Since April 2016, the rates of Income Tax applicable to dividend income have been 7.5%, 32.5% and 38.1% for basic, higher and additional rate taxpayers, respectively.
Any individual who has dividend income can benefit from the dividend allowance which has been set at £2,000 since April 2018. Dividends within the allowance are not charged to tax and this will remain the case.
For 2021-22, the ordinary rate, upper rate and additional rate were 7.5%, 32.5% and 38.1% respectively. These rates increased by 1.25% to 8.75% 33.75% and 39.35% from April 2022.
The dividend trust rate of Income Tax was 38.1%, 2021-22. This also increased to 39.35% from April 2022 to remain in line with the additional rate.
Although the 1.25% increase sounds fairly insignificant, a basic rate taxpayer with £22,000 of dividend income would pay £1,750 tax in 2022-23. The equivalent tax due for 2021-22 was £1,500. The increase of £250 represents a 17% increase in tax due even though rates have only increased by 1.25 percentage points.
Director/shareholders of small companies who have adopted a high dividend, low salary approach will see continuing benefits from this strategy, but fine-tuning remuneration packages to include the new rates may be beneficial.
Employment Allowance increase
The Employment Allowance has risen from £4,000 to £5,000 – meaning smaller firms will be able to claim up to £5,000 off their employer National Insurance Contributions (NICs) bills.
Announced by the Chancellor at last month’s Spring Statement to reduce employment costs, the change takes an extra 50,000 firms out of paying NICs and the Health and Social Care Levy. This increases the total number of businesses not paying NICs and the Levy to 670,000.
According to the Chancellor, 94% of businesses benefitting from the £1,000 increase are small and micro businesses, and the sectors that will see the highest numbers of employers benefitting are the wholesale and retail sector (87,000); the professional, scientific and technical activities industry (63,000); and the construction sector (52,000).
Using your private vehicle for business journeys
Employers can pay employees a fixed rate per mile to cover the costs of using their own vehicles on company business.
The present agreed rates per mile are:
- Cars and vans – 45p per mile for the first 10,000 miles and then 25p per mile.
- Motorcycles – 24p per mile.
- Bikes – 20p per mile.
What if you are paid more than these rates?
If your employer pays you more than these rates the excess paid over the agreed rates will be taxed as a benefit in kind.
Employers would need to declare these benefits at the tax year end on form P11D.
What if you are paid less than these rates?
New internet laws return to Parliament
Parliamentarians will debate the government’s ground-breaking Online Safety Bill which requires social media platforms, search engines and other apps and websites allowing people to post content to improve the way they protect their users.
Ofcom, the regulator, will have the power to fine companies failing to comply with the laws up to ten per cent of their annual global turnover, force them to improve their practices and block non-compliant sites. Crucially, the laws have strong measures to safeguard children from harmful content.
Ahead of Tuesday’s debate, the government is launching the next phase of its Online Media Literacy Strategy. It aims to help vulnerable and ‘hard-to-reach’ people, such as those who are digitally excluded or from lower socio-economic backgrounds, navigate the internet safely and teach them to spot falsities online.
The Department for Digital, Culture, Media and Sport (DCMS) will spend £2.5 million to advance the plan through the next year including on training, research and providing expert advice. This includes a new Media Literacy Taskforce featuring experts from a range of disciplines and a boost to the Media Literacy Fund, which gives teachers and local service providers the skills they need to teach people to improve their critical thinking of what they see online.
Tax Diary May/June 2022
1 May 2022 – Due date for corporation tax due for the year ended 30 July 2021.
19 May 2022 – PAYE and NIC deductions due for month ended 5 May 2022. (If you pay your tax electronically the due date is 22 May 2022).
19 May 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2022.
19 May 2022 – CIS tax deducted for the month ended 5 May 2022 is payable by today.
31 May 2022 – Ensure all employees have been given their P60s for the 2021/22 tax year.
1 June 2022 – Due date for corporation tax due for the year ended 31 August 2021.
19 June 2022 – PAYE and NIC deductions due for month ended 5 June 2022. (If you pay your tax electronically the due date is 22 June 2022)
19 June 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2022.
19 June 2022 – CIS tax deducted for the month ended 5 June 2022 is payable by today.