The costs of keeping the country running through covid were huge and inflation is expected to add to the country’s debt. The Office for Budget Responsibility has indicated that the treasury will need to find £45bn in interest, before even thinking about paying off the debt itself. As taxpayers we will be providing the extra cash!
From April, the Chancellor is not directly increasing the rates of income tax we pay, he is freezing the thresholds at which basic and higher rates of income tax are paid from April 2022 to April 2026, effectively increasing the amount we actually have to pay as inflation pushes up earnings.
There will also be an additional 1.25% contribution added to both employee and employer National Insurance from April and a similar additional charge on dividends. This is referred to as the Health and Social Care Levy. From April 2023 it will be extended to employees above the state pension age.
The changes will not end there. The Treasury has issued a raft of consultations that could
all mean extra costs.
There will be greater scrutiny if you are self-employed, or if you become a new landlord, with the onus on you to report your new venture even before it turns a taxable profit.
There could also be increasing pressure for ‘timely payment’ or in other words, collecting tax sooner. This is still just a consultation at this stage, but the government is understandably keen to raise funds quickly.
These changes mean that it will be more important than ever to ensure that you are not paying too much tax – and there are two key areas to look at
Are you claiming all your allowances?
Can you reduce your tax liabilities?
It could be time to:
- Maximise your pension contributions to make full use of tax relief
- Get a detailed pension forecast – to see the effect 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
MJB Avanti | 08000 388799