Dividend tax increases
If you have been keeping up with announcements from Downing Street, you will know that from April 2022 the hybrid rates of Income Tax on dividend income are increasing by 1.25 percentage points.
The changes from April 2022 are:
- The first £2,000 of dividends received are free of any additional tax charge, no change here.
- If you are a basic rate tax payer, your dividend income in excess of £2,000 will be taxed at 8.75% (presently 7.5%).
- If you are a higher rate tax payer, any dividend income that falls into the higher rate band will be taxed at 33.75% (presently 32.5%).
- If you are an additional rate tax payer, any dividend income that falls into the additional rate band will be taxed at 39.35% (presently 38.1%).
Even with these increases, it is likely that director/shareholders adopting the high dividend, low salary strategy will still save on NIC costs.
Savers who have their funds in tax-exempt wrappers, ISAs for example, will be unaffected.
Other savers would need to have fairly significant portfolios outside tax exempt investments in order to pay any dividend tax. With average dividend yields running at approximately 3.5%, you would need to have a portfolio in excess of £57,000 to breach the £2,000 tax-free limit.
NIC increase - now you see it, now you don't
From April 2022, in line with announcements made last month, National Insurance Class 1 contributions (that will affect employed persons and their employers) and Class 4 contributions (that will affect the self-employed), are increasing by 1.25%.
These increases will affect all employed and self-employed workers that presently pay National Insurance.
This increase will only apply to NIC rates for one year. From April 2023, the 1.25% increase will be removed from Class 1 and Class 4 NIC rates and a new tax is being created to be known as the Health and Social Care Levy (HSCL).
The HSCL will appear as a separate item on payslips and tax statements for the self-employed. The Levy is the closest the UK will have to a hypothecated tax - a tax levied and applied to a specific funding objective, i.e., funds for the NHS and social care budgets.
Whilst payroll software providers will already be making changes to their code to accommodate this new tax, it will be interesting to see if HMRC can adapt their systems in time for the April 2023 launch date.
Many smaller company employers, those that can claim the £4,000 employment allowance, will likely escape payment of the 1.25% increase in employers’ Class 1 contributions. However, the increase will also apply to Class 1A NIC employer contributions and these are not covered by the employment allowance.
Data easing for the UK?
In a recent press release issued by the Department for Digital, Culture, Media and Sport, with the leading title “Unleashing Data’s Power”, it was announced:
“The Information Commissioner’s Office (ICO) is set for an overhaul to drive greater innovation and growth in the UK’s data sector and better protect the public from major data threats, under planned reforms announced by the Digital Secretary Oliver Dowden today.
- Plans include tougher penalties for nuisance calls and text messages.
- Government wants new data regime “based on common sense, not box ticking” to cement UK’s position as a science and tech superpower.
- Consultation launched today will also examine what more can be done to mitigate algorithmic bias.
- World-leading experts appointed to the Centre for Data Ethics and Innovation’s advisory board to drive trustworthy innovation.
According to government sources the reforms will:
- Cement our position as a science superpower, simplifying data use by researchers and developers of AI and other cutting-edge technologies.
- Build on the unprecedented and life-saving use of data to tackle the COVID-19 pandemic.
- Secure the UK’s status as a global hub for the free and responsible flow of personal data - complementing our ambitious agenda for new trade deals and data partnerships with some of the world’s fastest growing economies.
- Reinforce the responsibility of businesses to keep personal information safe, while empowering them to grow and innovate.
- Ensure that the ICO remains a world-leading regulator, enabling people to use data responsibly to achieve economic and social goals.”
Students are warned of tax scams
University students taking part-time jobs are at increased risk of falling victim to scams, HMRC is warning.
Higher numbers of students going to university this year means more young people may choose to take on part-time work. Being new to interacting with HMRC and unfamiliar with genuine contact from the department could make them vulnerable to scams.
In the past year almost one million people reported scams to HMRC.
Nearly half of all tax scams offer fake tax refunds, which HMRC does not offer by SMS or email. The criminals involved are usually trying to steal money or personal information to sell on to others. HMRC is a familiar brand, which scammers abuse to add credibility to their scams.
Links or files in emails or texts can also download dangerous software onto a computer or phone. This can then gather personal data or lock the recipient’s machine until they pay a ransom.
Tax Diary October/November 2021
1 October 2021 - Due date for Corporation Tax due for the year ended 31 December 2020.
19 October 2021 - PAYE and NIC deductions due for month ended 5 October 2021. (If you pay your tax electronically the due date is 22 October 2021.)
19 October 2021 - Filing deadline for the CIS300 monthly return for the month ended 5 October 2021.
19 October 2021 - CIS tax deducted for the month ended 5 October 2021 is payable by today.
31 October 2021 - Latest date you can file a paper version of your 2021 self-assessment tax return.
1 November 2021 - Due date for Corporation Tax due for the year ended 31 January 2021.
19 November 2021 - PAYE and NIC deductions due for month ended 5 November 2021. (If you pay your tax electronically the due date is 22 November 2021.)
19 November 2021 - Filing deadline for the CIS300 monthly return for the month ended 5 November 2021.
19 November 2021 - CIS tax deducted for the month ended 5 November 2021 is payable by today.