Important Changes to Consider for the New Tax Year
We examine how changes in the 2022/23 tax year might have an impact on both your business and personal finances – and what you need to know to stay on top of them. Read on to find out changes you will see in this new tax year.
A new tax year is, for many businesses, the most significant financial event in the calendar.
It can have a multitude of effects on both your company and you personally, some of which you may not even be aware of. If you’re wondering when the new tax year starts and how it might affect your business and personal life, look no further. Here, we explain the key changes to look out for.
What changes in the new tax year might affect my business?
It’s in the interest of your company for you to be aware of the potential effects that the new tax year’s changes could have on your business – especially as some are less obvious than others.
National insurance increases 1.25%
National insurance has increased by 1.25% for all employers in this new tax year. This means that from 6 April 2022 employers are paying 15.05% in National Insurance contributions, up from 13.8% in the previous year.
Dividend income tax rise
Dividend tax has increased by 1.25% in the new tax year to help pay for health and social care. From 6 April 2022 the following dividend tax rates apply:
- Basic rate: 8.75%
- Higher rate: 33.75%
- Additional rate: 39.35%
The tax-free dividend allowance of £2,000 remains the same.
VAT on hospitality back at standard rate
The government’s temporary reduction of VAT for hospitality goods and services ended at the start of the new tax year. It was initially introduced in 2020 to help support the industry during the coronavirus pandemic. From 1 April 2022, the rate of VAT rose to 20% again.
Higher employment allowance
The employment allowance increased from £4,000 to £5,000 at the start of the new tax year. The allowance is available for businesses, charities and community amateur sports clubs that paid less than £100,000 in class 1 National Insurance contributions during the previous tax year.
New residential property tax
A new residential property developer tax (RPDT) of 4% was introduced on 1 April 2022. The tax will apply to businesses that make over £25 million in profits from residential property development in the UK.
What changes in the new tax year might affect my personal finances?
It’s not just your company that might be affected by changes in the new tax year. Numerous shifts in the way you manage your personal finances could be on the horizon, too.
National Insurance increases
National Insurance has also increased by 1.25% for employees in the new tax year.
The government announced in the 2022 Spring Statement that the earnings threshold at which workers will start paying National Insurance will increase to £12,570 from July 2022. This could save the average worker around £330 a year, according to government estimates.
However, as this change does not come into effect until July 2022, the median basic-rate taxpayer earning £24,100 will pay an extra £15 in tax a month. Meanwhile, the median higher-rate taxpayer with an income of £67,100 will pay an extra £59.60 a month until then.
Whether you are paying more or less this tax year because of these changes will depend on your own individual circumstances.
State Pension rises 3.1%
The State Pension has increased by 3.1% in the new tax year. As a result, from 6 April 2022 the basic state pension rose to £141.85 per week while the full rate of the new State Pension is now £185.15 per week. The pension Lifetime Allowance, has remained at the same level of £1,073,100.
National Living Wage boost
The National Living Wage, which is paid to workers over the age of 23, increased to £9.50 per hour from 1 April 2022.
For workers under the age of 23 and apprentices, the National Minimum Wage applies. In the new tax year, the National Minimum Wage is:
- £9.18 for 21- to 22-year-olds
- £6.83 for 18- to 20-year-olds
- £4.81 for 16- to 17-year-olds
- £4.81 for apprentices
When does the new tax year start?
In the UK, the tax year starts on 6 April and runs until 5 April the following year. This is the period of time that must be accounted for each year for those who need to file a tax return.
How to prepare for a new tax year
The best way to prepare for a new tax year is to keep updated with the latest financial developments and always research the rules associated with any financial decisions for your business. Consulting a tax professional, where possible, can help you with the process.
If you don’t have a dedicated finance department for your business, investing in accounting software can help too. Shopping around for the best accounting software for your business can help make things run smoother and avoid any costly mistakes.
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Peter reports on a number of areas in the personal finance sector, with a particular interest in supporting businesses and individuals in the UK services industry. Read more
Brean is a personal finance writer at NerdWallet. She covers a range of financial topics and has written for consumer titles including Which?, Moneywise and The Motley Fool. Read more