Yesterday's budget had the feel good factor - cheaper cider, beer and sparkling wine accompanied by very few changes to taxation 👍
But not so fast... most of the changes that really interest small business owners had already been announced. So let's summarise yesterday's Budget with an eye on small businesses, including the pre-budget announcements.
Business Tax
Business rates reform: The inflation-linked multiplier will be cancelled for 2022-23 and revaluations will be accelerated to every three years from 2023.
Corporation tax remains at 19%. From April 2023 profits between £50,000 - £250,000 will attract gradually increasing tax rates of 20-25% (a small profits rate will remains for profits < £50,000).
Self-employed National Insurance: Class 4 rate (on profits over £9,880) for 2022/23 increases to 10.25% from 9%. Meaning, a self-employed person's marginal tax rate* is now 30.25% up from 29%.
Personal tax
Tax free Personal Allowance is frozen at £12,570 until 2025/26, as is basic rate tax at 20%.
Employees National Insurance (class 1) increases to 13.25% from 12%. Meaning, an employee's marginal tax rate* is now 33.25% up from 32%.
The tax free dividend allowance remains at £2,000 per year but the tax rate for dividends exceeding that increases to 8.75% from 7.5%. Meaning, a small company director/shareholder's marginal tax rate* is now 27.75% up from 26%.
MTD for Income Tax Self-Assessment (ITSA) will be introduced from April 2024. This measure will mandate electronic bookkeeping for sole-traders and partnerships and is worth being aware of if you're not already using cloud bookkeeping software. More info and suggested bookkeeping apps can be found here: How MTD for Income Tax will affect small businesses (masseyaccountingcompany.com)
*Marginal tax rate is the highest rate at which a person pays tax. For a basic rate taxpayer this is essentially the tax rate % + NI rate % on earnings exceeding tax and NI thresholds.
Other
The Capital Gains Tax Annual Exemption is frozen at £12,300 as are the rates (basic rate 10% / 18% on residential property).
The reporting deadline for disposals of UK residential property is increased to 60 days (from 30).
National Living Wage (for those over 23yo) will rise from April 2022 to £9.50 (from £8.91)
In summary, we're looking at higher tax rates and frozen tax free thresholds for a few more years to come.
Would you like help to pay less tax? Feel free to get in-touch or check-out our related posts 👇