April 2022 – Tax Changes that are Going to Hurt
With the recent Spring Statement this week, many families and individuals around the country will be assessing how the Chancellor’s announcements will impact their finances. As the country faces a number of tax increases below is an outline of what this means for you.
In April 2022, the UK is expecting a number of changes that will affect everyone. The first is:
1. Health and Social Care Levy:
-Employee National Insurance is going up by 1.25% across the board
-Self Employed National Insurance (Class 4) is going up by 1.25%
-Employers National Insurance is going up by 1.25%
-Dividend tax is increasing by 1.25%
What does this mean?
-All employees and self-employed will pay more national insurance, but if you earn over £50,270 a year, you will pay substantially more. The current high-rate national insurance rate is 2%, so it will be effectively increased by 62.50% to reach 3.25%.
-Small business owners or lifestyle businesses that are limited will get double taxed. On your salary, you will pay from the business extra national insurance employer and employee national insurance, so an extra 2.5%.
You will also be liable to paying 1.25% extra on any profits you take as dividends, an increase at basic rate of 16.6% (from 7.5% currently).
Ultimately, the net result is less money in your pocket.
2. Income Thresholds Frozen – It’s a stealth tax
-As the personal allowance and other income tax thresholds are not changing, it means as your income increases, you will pay more tax. Inflation recently hit 6.2% according to the Chancellor Rishi Sunak, which is a 30 year high (BBC news 23/03/2023) so this is likely to have an impact to many people.
The Stealth Taxes
There have been long standing stealth taxes on income that could affect you. Examples include:
If you have two children and have earnings between £50,000-£60,000, you are losing your child benefit. This effectively means your tax rate is 61.25% roughly (for one child, this is just over 50%). The more kids you have, the bigger that tax rate.
If you earn between £100,000 and £125,140, you once again enjoy the pleasure of effectively 63.25% tax. This is because you start losing your personal allowance at this point. Not an issue when you earn far in excess of this, but if you are lucky enough to earn for example £120,000, then on that £20,000 slice you only get £7,600.
What Can I do?
Book a meeting with us now to find out how we can help you.
Article written by Michael Nicolaou, Head of IFA Team, Fintuity
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Please Note: All information, references and dates included in this article were accurate at the time of publishing.
