Smarter Blog – Update 11th February 2022

It has been a while since we last sent a blog, partly because the news in the accounting world has been a little slow and partly because January (and the lead up to January) is our busiest time of the year. It certainly has been busy, but glad to say we’re into February and very much looking forward to spring being around the corner.

It feels as though not a great deal has changed over recent months since we last wrote. Covid is very much still with us, however it does feel like the latest strain, although wreaking havoc in terms of numbers, is less serious. Hopefully we are moving forwards and life is starting to return to normal (or as close as normal it can be).

We are only just finishing with the 2020/21 tax year, but the 2021/22 tax year is also drawing to a close. The new 2022/23 tax year, like all tax years, sees some changes but this year there are many changes to bear in mind. Here is a reminder of some of those major changes:

• Minimum Wage – Minimum wage rates will increase substantially from April 2022

• State Pension – As announced back in September the pension triple lock will be suspended in 2022. Instead, state pensions will increase by the higher of inflation or 2.5% (removing the average earnings component). With inflation rates being high (CPI currently 5.4%), this will result in a large increase
• Tax Rate Changes
  • Income Tax – Personal allowances and the Higher Rate threshold will be frozen at 2021/22 rates until 5 April 2026
  • National Insurance – The new Health & Social Care Levy comes into effect from April (additional 1.25%). Remember this also impacts Dividend Tax by the same amount from April, and Private Pension Income from April 2023
  • Capital Gains Tax – Annual Exemption Rate will be frozen until April 2026
  • Inheritance Tax – No changes and rate bands frozen until April 2026
  • Corporation Tax – No changes for this year. In the March 2021 budget, the Chancellor announced that Corporation Tax rates will rise to 25% (from 19%) for profits of more than £250,000 from April 2023. For profits between £50,000 and £250,000 there will be taper relief between the current rate of 19% and the new rate of 25%
  • VAT – No changes and the VAT rate on tourism and hospitality will return to 20% from April as things stand
  • Annual Investment Allowance – The Chancellor extended the £1 million allowance for capital purchases. Currently from April 2023 this will go back to £200,000 (fine for most of our clients) and the 130% super deduction for Limited Companies will end
• Business Rates –Business Rates are a major cost to some businesses (retail, hospitality, etc). Wider reform is still pending, although well overdue, but some changes from April:
  • Business Rates multiplier frozen until April 2023
  • 50% rates relief for retail, tourism, and leisure in 2022/23 (extending current reliefs in place)
  • Business Rates revaluations to be completed every 3 years, instead of the current 5
  • Transitional relief extended for a further year to April 2023
  • From April 2023 (until April 2035) exemptions will be brought in to support investment in green technologies, this includes exemptions for solar panels and wind turbines, which currently are rateable
  • The Treasury will continue to consider the introduction of an online sales tax

Another change of note from April is a change to Making Tax Digital for VAT. Most VAT registered businesses have already made the transition to filing VAT returns under the Making Tax Digital requirements, namely those with turnovers above £85,000. VAT registered businesses with turnover under the VAT threshold (£85,000) have however not previously been required to make the transition and have been able to continue filing VAT returns on the old system. From April these businesses will also have to comply with Making Tax Digital for VAT. For those clients we currently prepare and file VAT returns for, we will take care of the arrangements and discuss any changes with you as required. However if you file your own VAT returns, or we undertake a file only service for you, you will need to consider what changes need to be made. If you need assistance making the change or are unsure what you need to do, then please get in touch with your Smarter Accounting contact.

Making Tax Digital has so far been limited to VAT filing. However, in the coming years there is a massive scope of change coming for pretty much all businesses who will have to file all tax returns digitally. We will be sending a separate blog on this subject soon, but cloud accounting packages like Xero, QuickBooks, etc are the future. We have transitioned all of our bookkeeping clients to Xero or QuickBooks over the past few years and have also trained and help set up many clients who do their own bookkeeping on these systems as well. If this is something that you are interested in, contact us to discuss the advantages and how we can make these tools work for you and your business.

The UK economy is the other major point of interest right now. Politically things seem a mess and the economy is coming under various pressures. Keeping things away from the political side, the two economic factors at present are:

• Inflation – The latest stats released show Consumer Price Index (CPI) Inflation at 5.4% (this index measures the change in cost of the average shopping basket), with Retail Price Index (RPI) Inflation at 7.5% (this index is on general prices and includes housing). The Bank of England is warning that CPI will increase to 7.25% in April and settle at 6% for the year. These are very high figures and the highest for over 30 years. This is having an impact on us all and will continue to do so.
• Interest Rates – The Bank of England have recently announced an increase to the base rate from 0.25% to 0.5%. Such interest rates are historically low and have been for over a decade. With inflation where it is, the traditional policy to control inflation is to put up interest rates. Savers will be happy, but if you have a mortgage then perhaps it is time to review that fixed rate deal?

The Chancellor has announced a spring update for the 23 March. This traditionally would have been the budget, but that has now switched to the Autumn. We will be listening to see what he has to say and will bring you any relevant news.

Smarter Accounting COVID Policy

We have continued to review our Office policy in relation to Covid and are starting to conduct face-to-face meetings. The Offices doors remain closed, but we will be reviewing things over the coming weeks. The health and safety of clients and staff remain paramount, but we accept that things need to start to change. Please note however that face to face meetings remain by appointment only.

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Best wishes and stay safe