Last updated: March 07, 2022

Changes affecting staff costs and dividends from April 2022

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As we approach April 2022, a number of changes announced in the Chancellor’s latest Budget come into effect. Whilst the Budget provided some security for businesses, like scrapping plans to reduce the Annual Investment Allowance back down to £250,000, it also introduced some, let’s not so great, changes.

 

NIC increase - 1.25%

The National Insurance Contributions (NIC) rate is set to increase by 1.25% for employees, employers and the self-employed to support the NHS, health and social care.

 

Up to 31 March 2022

From 1 April 2022

Employers’ NIC

13.8%

15.05%

Employees’ NIC

   

   Monthly earnings between £797 and £4,189

12%

13.25%

   Monthly earnings above £4,189

2%

3.25%

Self-employed income

9%

10.25%

Self-employed weekly NIC (the stamp)

£3.05

£3.05

 

From April 2023, a Health and Social Care Levy will be introduced, whilst NIC rates return to previous rates.

It was also announced that the National Living Wage and Apprenticeship Wage limits were being increased.

 

Up to 31 March 2022

From 1 April 2022

National Living Wage

£8.91

£9.50

21 - 22

£8.36

£9.18

18 - 20

£6.56

£6.83

16 - 17

£4.62

£4.81

Apprentice Rate

£4.30

£4.81

Accommodation offset

£8.36

£8.70

 

What do you need to do?

Key tasks to make sure you’re on top of these changes include:

  • Ensure your payroll software is updated - your software provider should automatically update their systems with the new rates from 1 April, but you may need to update the software for the rates to be installed. If we run your payroll, then this will all be sorted for you.
  • Communicate any pay increases to your employees (for example if they are on the National Living Wage or an Apprentice rate), but also notify them of the increase in NIC. HMRC has advised employers, where appropriate, to include ‘1.25% uplift in NICs, funds NHS, health & social care’ where appropriate on payslips to help explain the changes.
  • Check the affordability of these changes - you may need to review your current pricing policy and increase prices to account for the increased operating costs.
  • Update your budgets and forecasts - make sure any budgets or forecasts you’ve prepared reflect these changes. If you’re tight on cash, you may need to seek short term loan support - if so please give us a call as we have numerous loan partners that can help.
  • Update internal records - consider whether any employee contracts or staff handbooks require updating to reflect these changes.

 

Dividend tax rate increase - 1.25%

In case you’re thinking ‘well if the salary cost is increasing, I’ll just take more dividends’, the dividend band rates are also increasing by the same 1.25%.

 

Up to 31 March 2022

From 1 April 2022

Basic rate

7.5%

8.75%

Higher rate

32.5%

33.75%

Additional higher rate

38.1%

39.35%

 

What do you need to do?

Key tasks to make sure you’re on top of these changes include:

  • Speak to your accountant, tax advisor or IFA to consider your best options.
  • Consider extracting more profits as dividends prior to the tax increases on 1 April 2022.]

Tax planning can be an arduous task, and ’getting it right’ might be considered a fine art. At Inform, our in-house tax experts are always on hand to provide tailored tax advice, minimising your tax bill and saving money wherever possible.

 

Overdrawn Directors’ Loan tax rate increase - 1.25%

An overdrawn directors’ loan account arises when you, as a director, have borrowed money from the company, and hence owe the money that money. This is also called Section 455 tax, and up to 1 April has been payable at 32.5% of the overdrawn balance, but this is now increasing to 33.75%.

It should be noted, however, that this tax is repaid to the company once you repay your directors’ loan.

 

What do you need to do?

  • As with nearly all financial accounts, it pays to keep your directors’ loan account in credit (you can even charge the company interest on the loan amount).
  • There are ways you can reduce an overdrawn balance e.g. by making payment to the company, or by using dividends to cover the balance. Talk to your accountant or tax advisor to see what options are available to you.

 

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