It’s no surprise that, as the pandemic recedes, tax rises will come into play. But when will these changes begin to be introduced? Peter Webb, our Head of Tax Advisory, takes a look at possible tax changes this year.
We are now almost two years into the pandemic. Countries are beginning to open up and governments are keen to support economic recovery. With the huge costs of fighting the pandemic weighing heavy, it seems certain that we’ll all face higher taxes to help meet the bill.
There have already been some surprise moves; notably the announcement that the United Arab Emirates will be introducing a Corporation Tax from the middle of 2023 and a much-delayed increase to the goods and services tax will be implemented in Singapore shortly. In the US there are proposed increases to Income Tax, Capital Gains Tax and Corporation Tax.
But what about UK taxes? In the UK we have already seen tax reliefs frozen, and some tax increases already announced. So, what UK tax rises do we already know about?
Increases to National Insurance contributions
National Insurance contributions are paid by the employed and self-employed, and sometimes on a voluntary basis too. The rates of National Insurance contributions are set to rise by 1.25% from 6 April 2022, with the increase earmarked to fund the NHS and social care. The rise will be taken along with the rest of any National Insurance payment in 2022/23 and brings the highest rate of contributions any employee can make to 13.25%. Employers pay National Insurance contributions on employee’s wages and benefits too, and the increase applies to these contributions as well.
Increases to Income Tax on dividends
From 6 April 2022 the tax paid on dividend income will increase by 1.25%. You may have to pay dividend tax if you are an investor and receive dividends from your shares, but there is a small amount you can earn without attracting tax. This tax-free allowance is currently set at £2,000 each year. But don’t forget that any rates of tax on dividends depend on your other sources of income; the current rates will increase from 7.5%, 32.5% and 38.1% to 8.75%, 33.75% and 39.35% respectively.
Increase to Corporation Tax
In March 2021 the UK Chancellor, Rishi Sunak, announced an increase from 19% to 25% in Corporation Tax, to take effect from 6 April 2023. A small profits rate of 19% for companies with profits not exceeding £50,000 will help soften the blow a little.
With these changes in mind, it’s worth considering, as economies rebound and countries open up again, whether further tax increases will follow. In the UK we’ve already seen government sponsored consultations on raising Capital Gains Tax and on the reform of Inheritance Tax, and in April 2021 the International Monetary Fund called for introductions of wealth taxes to help pay for the pandemic. With those developments at play, it seems highly likely that there are more tax rises to come.
There may be some simple actions that you can take to protect your wealth from the tax increases which we are aware of, and steps you can take to position yourself favourably for future rises. Now is a good time to seek professional advice to discuss what actions are suitable for you against the prospect of increasing taxes.
To discuss your tax position, please contact your nearest office.