Autumn is here -which means Strictly, Bake off, (MAFSUK – guilty pleasure!)………………… and the start of tax return season!

Although the filing deadline is still 4 months away, many accountants require the information in the next month or so to be able to guarantee getting your return filed on time.  Believe it or not – yours is not the only return we have to get done!

Whether you are going to do your return yourself, or ask an accountant to help – there are certain key documents that you are going to need.  Starting to get this information together now will make completing your return easy when you come to do it.  You may need to request some of the information from third parties if you don’t have them to hand, so this needs to be done sooner rather than later.

Some of the key documents you will need are:

Employment Income

• P60 (or P45 if left an employment in the year)
• P11d if you had any benefits in kind (medical insurance, company car, director’s loan)

Self- employment

• Accounts for the year. You will generally need an accountant to prepare these for you from your bank statement, sales and purchase invoices

Bank Interest

• Details of interest earned on each bank account that is not an ISA account (however small, bank interest does need to be included on your return.) Your bank statement from May or June should show the total interest earned in the year – or you can get an interest certificate from your online account

Dividend Income

• If you have shares that have paid a dividend in the year, you will have received a tax voucher from the company. If you can’t find this and you know how many shares you have, you can look online to find the dividend history of the company.

Rental Property

• If managed by an agent, copies of your agents statements for the year
• Details of the mortgage interest paid in the year.  Your monthly mortgage payment may include both interest and capital payments so you may need to ask your bank for a statement of the interest paid in the year.
• Details of money spent on maintenance or refurbishment of the property as well as any other associated costs (insurance, service charges etc)

Pension Payments, Gift Aid and Child Benefit

• If you are a higher rate taxpayer, then you will need to include on your return details of:
  • Any payments made personally to a pension scheme
  • Any payments or donations made to charities
  • Details of any child benefit received in the year

Obviously everyone’s situation is different and there may be additional information you need for your return, but the above checklist covers the more common elements that are likely to need to find in order to complete your return.

If you require help with your return this year, then please do not hesitate to get in touch (soon!) with Rosie at Wilkins & Co.

2 increases were announced yesterday -NIC and dividend taxes are both increasing by 1.25% from April 2022.

For the first year, this will be collected as an increase in National Insurance.

But from April 2023, National Insurance will return to its current rate, and the extra tax will be collected as a new Health and Social Care Levy.

How will this affect you if you are self employed, an employee– or a limited company owner?

The Self-employed:

You currently pay 2 types of NIC – class 2 and class 4 NIC.

Class 2 NIC is a flat rate, currently £3.05 a week, or £158.60 a year.  This is paid via self-assessment when you do your tax return, and is not affected by the new measures.

Class 4 NIC is charged on your profit and is currently 9% of profits over £9,568. If you have profits over £50,270 then you only pay 2% class 4 NIC on amounts over this.  This is the rate that will go up to 10.25%, and then 3.25% from April 22.

Employees

 Employees have NIC deducted from their salaries each month through their pay packet.  There is no NIC due on the first £184 per week (£9,568 pa) and then NIC is payable at 12% on income between £184 and £967 per week (£9,568 – £50,284).  Over this amount the rate reduces to 2%.

This rate will increase from 12% to 13.25% from April 22.

Currently you stop paying NIC once you reach state pension age.  When this new amount of 1.25% moves from being called NIC and becomes the Health and Social Care Levy in April 23, this will be paid by state pensioners who are still working.

Employers

Employers pay employers NIC on employee’s salary.  Currently there is no employers NIC on the first £170 per week (£8,840 pa).  After this, employers NIC is paid at the rate of 13.8%, with no upper limit.  This rate will increase to 15.05% from April 22.

If a company has more than one employee on their payroll earning over the NI threshold, they can currently claim the NIC Employment Allowance.  This gives them a credit of up to £4,000 against their employers NIC bill and is claimed via the payroll each month.

Nothing has been said about the employment allowance in connection with the increase in NIC – presumably a company will still be able to claim the allowance while the increase is called NIC – but when it changes to the Health and Social Care Levy………………….?

Many small business owners choose to set their own salaries at £8,840 pa so that there is no NIC payable by either the employee or the employer, and their salaries will therefore not be affected by the increase in NIC.  This is why the dividend tax has been increased as well!

Dividend Tax

Dividends are paid to shareholders of limited companies and are often the way that company directors will take money out of their companies.  There is no NIC on a dividend, and hence it is an efficient way to pay yourself from your company.

Dividend tax is currently 7.5% for basic rate taxpayers, and 32.5% for higher rate taxpayers.

These rates will rise to 8.75% and 33.75% respectively from April 22.

As there is no NIC on a dividend, it is argued that increasing the tax on dividends at the same rate brings about some equality in the increases between the employed and the self-employed.  Company directors I am sure will be asking where the equality was in the covid help given out by the government in the last 18 months!

The dividend allowance of £2,000 remains, and any investments held in ISA’s are tax free so will also not be affected by this increase in dividend tax.

As this has just been announced there is limited information available at the moment so the above is produced on what we now know.  We will of course be updating you with new information as we get it!