Small business owners have had a lot of change to deal with this past year, so the recently announced increase to tax rates was probably the cherry on top. But how are they affected and what do they need to know?

In this blog we explore just that, to ensure you’re fully aware of what’s changing, when, and how your Vantage Accounting accountant can support you.

What’s been announced?

September 7^th saw the Prime Minister announce an increase in the rate of tax, by 1.25%. So from April 2022 this will affect tax payers in the following ways:

Dividend tax changes

• If you’re a basic rate taxpayer – increase from 7.5% to 8.75%
• If you’re a higher rate taxpayer – increase from 32.5% to 33.75%
• If you’re an additional rate taxpayer (for those earning over £150,000) – increase to 39.35%

Self Employed

• If you’re a basic rate taxpayer – increase from 9% to 10.25%
• If you’re a higher rate/additional rate taxpayer – increase from 2% to 3.25%

Employees

• If you’re a basic rate taxpayer – increase from 12% to 13.25%
• If you’re a higher rate/additional rate taxpayer – increase from 2% to 3.25%

The reasoning behind these increases is that the government is hoping it’ll bring in an additional £600 million each year.

How much extra can small business owners expect to pay?

Example – salary of £8,840 and dividends using up the full basic rate band

If your salary is £8,840 and you take out the maximum amount of dividends available to you, then you can expect to pay an additional £446.25 from April 2022 onwards. This equates to the extra 1.25% on your dividends in the basic rate band.

Example – if you take dividends in the higher rate threshold

You can expect to pay around an additional £12.50 per £1,000 of dividends taken within that tax band.

What you can be doing now to prepare

Regardless of which tax band you’ll fall within come April 2022, if you take dividends you’ll need to be mindful of when to take a dividend, as if you do so prior to April 5^th 2022 it’ll result in you paying a lower tax rate. To ensure you get it just right and to help put your mind at ease and your tax bill as low as possible, we strongly advise discussing your options with your Vantage Accountant.

Will the government also be making changes to the dividend allowance?

Currently the government hasn’t given any indications that they’re going to change the current dividend allowance of £2,000. So small business owners can continue to enjoy the first £2,000 of dividends tax-free.

What else do you need to be aware of?

If you employ any staff and have National Insurance liabilities, you’ll also have an NI increase of an additional 1.25%. Similarly, if you provide any Benefit in Kind’s to employees, you will see an increase in Class 1A National Insurance from 13.8% to 15.05%.

The S455 tax is also increasing in line with the higher rate for dividends (e.g. from the current rate of 32.5% moving to 33.75%).

How can Vantage Accounting help?

A tax rise is never something to look forward to, but whilst we can’t stop them from happening we can ensure we’ve made the most from the current tax rates before the new ones come into force. The best way to see what you can personally do and take full advantage of before April 2022, is to speak directly with your Vantage Accountant, so get in touch with them today.