Planning ahead of the April 2022 tax changes

Maintaining the stability of the UK through the coronavirus pandemic has resulted in enormous economic costs; and inflation is only expected to increase the Government’s debt.

The Office for Budget Responsibility has indicated that the Treasury will need to find £45bn in interest, before even considering paying off the debt itself. But it will be the taxpayers who will be providing this extra cash!

Extra costs on the horizon

• Income tax: From April 2022, the Chancellor will not be directly increasing the rates of income tax that we pay. However, the basic and higher rate threshold will be frozen from April 2022 to April 2026. Essentially, this means that the amount we pay is rising as inflation increases wages.
• National Insurance: A 1.25% contribution will be added to both employee and employer National Insurance from April 2022, as well as a similar additional charge on dividends. This is also known as the Health and Social Care Levy and from April 2023, this will be applied to employees above the state pension age.

The Treasury has also announced a number of consultations which could all mean extra costs. For example, there will be increased scrutiny on those who are self-employed, or recently became a landlord who will be expected to report a new venture even before it turns a taxable profit. There could also be an increasing pressure for collecting tax sooner –whilst this is still just a consultation at this stage, the government is understandably keen to raise funds quickly.

These changes mean that the onus is on you to ensure that you are not paying too much tax – and there are two key areas to look at:

1. Are you claiming all of your allowances?

Whilst, the majority of us rely on HMRC to inform us of what we owe, HMRC are only human and sometimes make mistakes. For example, if your income has fluctuated over the past few months, you may have forgotten an allowance or two.

It can be well worth reviewing your tax return. If you do find errors, there is a straightforward way to query them. HMRC has an established and efficient appeals system which you can find here.

2. Can you reduce your tax liabilities?

If your current assessment is correct, you might wish to take a more proactive approach to reducing your tax. It could be time to:

• Maximise your pension contributions to make full use of tax relief
• Make yourself a detailed pension forecast – to see the effect your changes will have
• Make full use of your ISA entitlements
• Look at your investment portfolio and (if practicable) ensure you take advantage of the full £12,300 CGT allowance before 5 April 2022
• For Shareholder/Directors, consider the timing of bonuses and dividends to mitigate the planned 1.25% rate increase
• Look at Salary Sacrifice arrangements which can be particularly effective in mitigating income tax and National Insurance Contributions

We recommend you carry out an annual review of your financial affairs, in order to check that you are not paying more tax than you need to and whether the structures you set up in the past are still correct.

Between now and the end of the tax year (5 April 2022) is a good time to assess whether you have claimed all the relevant allowances and are as well defended against high tax charges as you can be.

Year End Tax Review Guide

If you want to learn more information about what action you can take before the end of the 2021-22 tax year, you can read our Year End Tax Review Guide.

Read our Year End Tax Review Guide

How can we help?

The personal circumstances of each individual must be taken into account when you are deciding whether a particular plan is suitable or advantageous. We hope that these suggestions give you some ideas and we would also be happy to discuss them with you in more detail.

Our team can also provide a full tax review which will help identify the marginal tax traps waiting for you – and help you to avoid them!

If you are unsure as to whether you are making the most of your tax allowances or how you can reduce your tax liabilities, get in touch with one of our tax team on 01903 234094 about planning for the April changes.