New Tax Year: What you need to know
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 Fin-eX we’re an accounting outsourcing firm for Contractors, Freelancers and Locums operating as Limited or as Sole Trader.
The tax year is April 5, 2022. The new tax year 2022/23 begins on the sixth day.
The dates have not changed in over 200 years, and they occur at these times regardless of bank Holidays across the UK. This actually dates back to the days when people living in England were required to pay rent to their landlords and this was paid in a bi-weekly basis: 25 March 24 June 29 September, and 25 December.
Because the date of March was the beginning of the year that was to begin which was thought to mark the beginning of the fiscal year.
The system has been criticized by many, and it was subject to a government review was held in September 2021, after a large number of people wished, it was adjusted to correspond with the calendar year that ends on the 31 days of December and bringing it into line with US fiscal year. However, this would be a substantial cost which means that for the moment the 6 day of April will remain.
What does the beginning of the financial year mean for taxation?
Let’s first look at the way that this new financial year will affect taxes. To add to the confusion, not all tax changes have coincided with the new tax year in 2022.
The Council tax was changed from 1st April. State benefits and pensions, such as Universal Credit and Child benefits aren’t changing until the 11th of April.
If you’re a sole trader or self-employed you might receive a letter from HMRC that requires you to file an income tax return. This applies if you’ve earned more than PS1,000 (before deductions for tax relief) in the past twelve months. It is also necessary to file one in the event that you were a member of a business partnership during the tax year 2021/22.
If you’re required by law to file your tax returns, then you’ll be required to do it until the 31st of January 2023 in order to fill the form (or 31 the day the month of October in 2022 when it’s with paper). If you fail to file, you’ll be charged an increase in the tax due from 1 day of February. You’ll also be assessed a PS100 late penalty if you aren’t filing it by 31 the day of the month of January in 2023.
If you’ve just made the decision to become self-employed for the very first time and this is a new area for you, you need to sign up with HMRC to file tax returns as well as National Insurance purposes. A competent accountant at your side can ensure that you don’t overrun any deadlines and, in the end, you must begin making bank statements and receipts beginning on the 6 April. April, in order to submit taxes for this entire year.
2022 – What is changing and what is going to change
A lot of changes have taken place in April, including the Ofgem price cap for energy and other increases in bills occurring starting on April 1 day (or the day that is being dubbed by the media “Bleak Friday”).
In the tax year that is about to begin, there will be additional increases in water bills, council tax travel, stamps and travel. Due to rising prices for energy and the rise in inflation, many people will end up paying more.
Tax reforms that take effect this week are expected to affect a lot of people However, they’ve received little media attention.
Tax on dividends and national insurance
From Wednesday onwards, the government will announce a debated increase in NICs. The government claims that this rise is intended to aid in the funding of social healthcare as well as the NHS.
In the new rules that are in place, both employees as well as self-employed will have to pay 1.25p more to the pound. Additionally, employees are assessed 13.25 percent on earnings between PS9,880 to PS50,270 and 3.25 percent for earnings over the PS50,270 mark.
what is going to change
It is important to note that for self-employed people Class 4 contributions will increase to 10.25 percent and 3.25 percent.
In July, however, there will be some relief for some since the threshold at which NICs begin to be paid will increase from PS9,880 to a PS12,570. Anyone earning more than PS50,270 will generally be better off than they were the previous tax year, but their income will drop in the beginning. If your earnings are higher than this amount, you’ll not be as fortunate as during the tax year of 2021/22.
If a worker is employed and earning PS50,000, the impact of the two changes would result in a reduction in the amount of take-home pay, which is around PS200 annually – not a great thing considering the increasing cost of gas and electric costs for a typical household will rise by 53% in the next month, equal to PS693 per year.
Income tax allowances
In the last budget, Rishi Sunak announced that the threshold for personal allowances would remain at the same level until 2026, rather than increasing with the rate of inflation.
This is why the personal allowance that is tax-free remains at PS12,570 for this year.
Anything above that threshold is when the 20% income tax comes into force.
The upper limit for higher rate income tax remains PS50,270. The moment when people start paying tax at 40% within England, Wales and Northern Ireland at a maximum of PS150k which is then followed by at 45% over PS150k. This will push millions of taxpayers to the tax rate as they are offered pay rises which means that if your employer has granted you a raise it could leave you having a lower tax rate than you anticipated.
Increase in the cost of water
With the focus being on the rising cost of energy the issue has been overlooked that water costs are rising too.
In the end, water bills have been increasing by 1.7 percent across England and Wales increasing the cost of water by PS7 up to PS419 According to Water UK. However, there are diverse regional differences It is worthwhile to consult your local water company when you get your next bill.
The local councils across the country have increased their bills in the past, with the median Band D demand going up by 3.5 percent to PS1,966 each year. This is a PS68 increase over the previous year. Martin Lewis has called for homeowners to check if they’re in the right tax bracket and contest it if they are there is a problem.
The government has provided an income tax reduction for council those who reside in tax bands A-D. The tax rebate will be paid into your account in the month of April when you pay by direct debit. This will help to offset the increasing living expenses.
If you run your own business, you likely frequently use stamps to send out letters.
However, due to the steady decline in the cost of postage as more and more people are opting for electronic methods of communicating with customers, businesses, and in their private lives, along with the rising cost of inflation, the cost of stamps has been rising since this week.
If this can affect you, it is important to know that the price of a first-class stamp is increasing by 10p up to 95p. A second-class stamp will go up 2p, which is equivalent to 68p.
Fortunately, the price of fuel is dropping and the Chancellor has announced that the fuel duty would be reduced by 5p per one litre from the moment he announces 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 PS2, while the premium economy and higher will increase by PS5 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 provided PS161m with an increase in funding to ensure tax compliance
As changes are taking place this week already, you must be aware that HMRC has been granted money to combat tax evasion.
The chancellor has announced a funding and resource boost of PS161m which will provide money for tax investigations. The boost will result an estimated PS3 billion of taxes for the Treasury.
Rishi Sunak has announced that the government would spend PS161 Million over the course of five years, in order to “increase compliance and capacity for debt management within HMRC.”
Sunak stated: “By funding additional HMRC staff , we can provide more assistance for taxpayers who want to pay off tax liabilities, and address the most complicated tax-related risks, HMRC will ensure that companies of all sizes pay their tax obligations.”
The investment is in line with the IR35 “soft landing”. According to studies conducted by tax investigators into large companies resulted the figure to PS69 more per pound on employee costs for carrying it out. That’s a massive return of 6,800% on investment. Large and wealthy businesses earned more PS29 per pound than self-employed people and small companies earned an additional PS11 per pound.
The IR35 reforms have resulted in HMRC being capable of imposing sanctions (in the form of the tax bill) on private sector companies that are not in compliance. IR35 reforms enable HMRC to become more efficient in monitoring compliance. Some argue that the complex nature of IR35 makes it difficult to ensure compliance.
What should I accomplish this week?
Your accountant ought to have everything ready for the tax year that is about to begin If you think you’re not receiving the best care, Fin-eX Outsourcing can help.
Your accountant must be assisting you to save time and money on the day-to-day operations of your business, by helping you in tackling stressful tasks and claiming tax benefits for you. These are issues relating to HMRC taxes accounting, payroll, bookkeeping and auditing.
We at Fin-eX Outsourcing provide industry-leading service that cannot be disproved
If you’re not receiving the same quality of customer service you’re getting, it could be the time to change accountants.
The ideal time to change accountants is towards the company’s year-end or before the beginning of the new tax year however, it is possible to change accountants at any point during the year. We welcome new clients on a daily basis, all year long.
It shouldn’t be a difficult and costly, or even disruptive, process. We’ll provide the necessary information to seamlessly switch accountants. If you’re considering switching then you can learn all about changing your accounting accounts in this article.