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The new tax year: Changes and preparations for April 2022

by Madaline Dunn

The new tax year is almost upon us, and a number of changes are coming into effect in April 2022. These changes could hit you in the pocket, so there may be some preparations you may need to make to ensure you’re ready.

From council tax, car tax, pensions and tax codes, make sure you’ve got your finger on the pulse this April. At The Salary Calculator, we’ll walk you through:

• What is staying the same
• Incoming changes to council tax
• The new changes coming in for car tax
• What’s happening with pensions
• What to check before 5th April
• How to work out any changes to your taxes

What will stay the same in the new tax year?

Although the new tax year often brings in changes to the amount of tax people pay, as per Chancellor Rishi Sunak’s budget, there will be a number of freezes rather than cuts.

Income tax is frozen for this year and will remain that way until 2026. So, the threshold of £12,570 will stay the same, as well as the basic rate tax of 20%, which you will pay on any earnings over that amount up to £50,270. While this may sound positive at first, according to the Centre for Economics and Business Research (CEBR), over nine million workers will pay more as a result.

However, the situation in Scotland is different, as a devolved nation, there are different rates and thresholds when it comes to income tax. Any changes can be viewed here on the Scottish government website.

Capital gains tax which people pay when they make a profit on assets such as a buy to let property, and the allowance on this tax, which is set at £12,300 is also being frozen until 2026.

What changes are coming for council tax?

In February, Chancellor Rishi Sunak announced that roughly 20 million households in council tax bands A to D in England will be impacted by a £3bn council tax rebate. According to the government, this includes 95% of rented properties and the rebate does not have to be repaid.

The same kind of scheme is going ahead in both Scotland and Wales, with the former offering a £150 council tax rebate.

According to the Local Government Association (LGA), those eligible should set up a direct debit to speed up the process. Cllr Shaun Davies, LGA’s Resources Board chairman, outlined that without taking that step, it could “take longer.” This is because the local council will have to reach out first and then individuals will have to make a claim themselves.

While those living in bands E to H in England and Scotland won’t be eligible, you can check your eligibility by visiting the government website.

What changes will come into effect for car tax?

Car tax, otherwise known as Vehicle Excise Duty (VED), is increasing in April, and the amount you pay will depend on a few factors, including how old your vehicle is and the amount of emissions it produces.

To work out how your vehicle will be affected by the new changes, head over here, where you’ll be able to work out if you’ll encounter any increases.

What’s ahead for pensions

When it comes to the changes in store for pensions, there has been a suspension of the triple lock and instead, a new double lock is being temporarily introduced.

As per the triple lock, the state pension rises in line with the highest of the following three measures every year:

• A flat 2.5% rise
• Average earnings growth
• Inflation

It also applied to both the basic state pension and the new state pension. That said, the new double lock means that for 2022-23, the state pension will either rise by 2.5% or the inflation rate, which will, according to the government, last until 2023-24.

What to look out for this April

As the new tax year approaches, experts warn that people should lookout for a number of things.

The first thing to check is your tax code. While the most common tax code for the tax year 2021/22 and 2022/23 is 1257L, which will not change until 2026, it’s your responsibility to check that you’re not using the wrong one. Through checking if your tax code is correct, you’ll also be able to review whether you are owed money from HMRC or owe money.

As recently covered by The Salary Calculator, NI contributions will go up in April, too, so make sure you’re up-to-date with how the upcoming NI contribution changes will affect you.

Likewise, it has been advised that those who had to work from home during the 2020 lockdown or during the 2021/22 financial year to claim should review their entitlement to tax relief. This can be worth up to £125 from HMRC, and people are being encouraged to check what they’re owed before April 5, which could see the introduction of a rule change on claiming to work from home tax allowance.

How to work out any changes to your taxes

It’s always best to prepare for what’s in store, and if you want to check out how your finances will be affected by the upcoming changes in April, head over to The Salary Calculator, where you’ll be able to work out your take-home pay.

Tags: 2022, car tax, income tax, New tax year, Pensions, taxes

Social care tax proposed from April 2022

by Admin

The government announced yesterday plans to introduce new social care tax, intended to help reduce the costs incurred when a person goes into care. If the bill passes parliament, this will mean be an increase in National Insurance contributions of 1.25 percentage points from April 2022, to be replaced by a separate tax of the same amount from April 2023. The benefit of this additional tax, in England at least, is that care costs will be capped at £86,000 (less if you don’t have that much in savings / assets). Scotland, Wales and Northern Ireland set their own social care policies, but will receive additional revenue from the tax generated.

The plan has drawn criticism from many who see it is a tax paid by low- and middle-income employees to subsidise wealthy retirees. It also appears to be a break of a manifesto pledge not to raise income tax, National Insurance or VAT – the justification for which, put forward by the government, has been that the pandemic has changed things.

This BBC article has a clear summary of the changes in more detail, as well as a chart showing how much extra tax you’ll pay depending on how much you earn. The bill still needs to pass parliament, but when this and other changes from April 2022 are confirmed, The Salary Calculator will be updated with the latest rates so that you can see what a difference it will make to your take-home pay.

Tags: coronavirus, covid-19, HMRC, income tax, Jobs, national insurance, Pay As You Earn, social care, tax rates

Stamp duty in the UK

by Madaline Dunn

Stamp duty has hit the headlines recently, following the end of Chancellor Rishi Sunak’s end-of-June stamp duty holiday deadline. Reports have highlighted that transactions have slumped after a surge of homebuyers taking advantage of the government’s housing market policies.

So what exactly is stamp duty, and what does the end of the stamp duty holiday mean for homebuyers and the housing market?

At The Salary Calculator, we’ll walk you through:

• What stamp duty is
• When stamp duty applies
• How much stamp duty costs
• When you must pay stamp duty
• What the stamp duty holiday was
• What the end of the stamp duty holiday means for the housing market

What is stamp duty?

Stamp duty, or Stamp Duty Land Tax (SDLT), refers to the tax you must pay to HM Revenue & Customs when purchasing a residential property or piece of land in England or Northern Ireland.

When does stamp duty apply?

Standard stamp duty applies to those purchasing a property valued at £125,000; that said, this does not apply to first time buyers unless their property is valued at over £300,000. Those who are purchasing a second property are also required to pay stamp duty, although the amount you pay here can be claimed back if you sell your first property within three years.

Exemptions apply where a portion of one’s home is transferred to a spouse or partner after a separation or divorce, or an individual inherited a property in a will.

How much is stamp duty?

The amount of stamp duty one pays is dependent on a property’s purchase price and is tiered in the same way as income tax. This is as follows for the period between 1 July 2021 – 30 September 2021:

For England and Northern Ireland:

• The stamp duty rate for a main residence property valued at between £180,001 – £250,000 is 0%. For those with additional properties, a 3% surcharge is applied to the entire purchase price of the property
• The stamp duty rate for a main residence property valued at between  £250,001 – £925,000 is 5% and rises to 8% for additional properties
• The stamp duty rate for a main residence property valued at between £925,001 – £1,500,000 is 10% and rises to 13% for additional properties
•  The stamp duty rate for a main residence property valued at over £1,500,001 is 12% rising to 15% for additional properties

For Wales from 1 July:

• The stamp duty rate for a main residence property valued at between £180,001 – £250,000 is 3.5% and rises to 7.5% for additional properties
• The stamp duty rate for a main residence property valued at between £250,001 – £400,000 is 5% and rises to 9% for additional properties
• The stamp duty rate for a main residence property valued at between £400,001 – £750,000 is 7.5% and rises to 11.5% for additional properties
• The stamp duty rate for a main residence property valued at between £750,001 – £1,500,000 is 10% and rises to 14% for additional properties
• The stamp duty rate for a main residence property above £1,500,000 is 12% and rises to 16% for additional properties

For Scotland from 1 April:

• Land and buildings transaction tax rate for a main residence property valued at up to £145,000 is 0% and rises to 4% for additional properties
• Land and buildings transaction tax rate for a main residence property valued at between £145,001 – £250,000 is 2% and rises to 6% for additional properties
• Land and buildings transaction tax rate for a main residence property valued at between £250,001 – £325,000 is 5% and rises to 9% for additional properties
• Land and buildings transaction tax rate for a main residence property valued at between £325,001 – £750,000 is 10% and rises to 14% for additional properties
• Land and buildings transaction tax rate for a main residence property valued at over £750,001 is 12% and rises to 16% for additional properties

When must you pay stamp duty?

When buying a property in the UK, it’s a legal requirement to pay your stamp duty within 14 days of the date of completion/date of entry. After this timeframe, interest may be applied, and you may be hit with a fine. This follows legislative changes introduced in 2019.

What was the stamp duty holiday?

The stamp duty holiday was introduced back in July 2020. This tax cut was introduced to stimulate the property market amidst the Covid-19 pandemic and make it more accessible to homebuyers. It resulted in savings of up to £15,000 for around 1.3 million homebuyers.

Although the stamp duty holiday was set to expire in March, it was extended until June 2021. Temporary stamp duty rates are now higher than before and apply between July to September. Standard stamp duty rates will apply from 1 October 2021 onwards.

Standard rates for England and Northern Ireland are as follows:

• The stamp duty rate for a main residence property valued at up to £125,000 is 0% and 3% for additional properties
• The stamp duty rate for a main residence property valued at between £125,0001 – £250,000 is 2% and rises to 5% for additional properties
• The stamp duty rate for a main residence property valued at between £250,001 – £925,000 is 5% and rises to 8% for additional properties
• The stamp duty rate for main residence property valued at between £925,001 – £1,500,000 is 10% and rises to 13% or additional properties
• The stamp duty rate for main residence property valued at £1,500,001 and over is 12% and rise to 15% for additional properties

What does the end of the stamp duty holiday mean for the housing market?

The end of the stamp duty has been predicted to have some negative effects, such as:

• Buyers pulling out of deals
• A decline in buyer interest, and;
• A drop in house prices

That said, the future is uncertain, and industry experts’ forecasts are varied. Recently, Nationwide recorded a “surprising” 2.1% rise in sold prices, which Robert Gardner, Nationwide’s chief economist, has attributed to a demand for properties between £125,000 and £250,000.

Meanwhile, Gabriella Dickens, a senior UK economist at Pantheon Macroeconomics, commented: “We think that house prices will pick up again in 2022, finishing the year about 4% higher than at the end of 2021.”

Tags: coronavirus, Economy, house prices, houses, income tax, recovery, SDLT, stamp duty, The Salary Calculator

How to claim mileage allowance when you’re self-employed

by Admin

If you use your own car for business, you may be able to claim a proportion of the actual total cost of buying and running your vehicle, including such things as insurance, repairs, servicing, fuel, etc. However, keeping track of every cost and working out the exact proportion of business use for your vehicle takes time and effort.

Instead, many self-employed people claim mileage allowance, a flat-rate scheme that provides a much simpler way to claim back the cost of using your own vehicle for business. Mileage allowance is part of a range of “simplified expenses” options that HMRC offers to self-employed people. They’re designed to make tax admin easier and quicker.

How much mileage allowance can you claim?

If you’re self-employed, you can claim a mileage allowance of:

• 45p per business mile travelled in a car or van for the first 10,000 miles and
• 25p per business mile thereafter
• 24p a mile if you use your motorbike for business journeys.

If you travel with someone else who also works for your business, as the driver, you can claim an additional 5p per mile for each extra passenger. So, if three of you travel together, you can claim 45p + 10p per mile (two x 5p per mile for the two additional passengers) for the first 10,000 miles, then 25p + 10p per mile thereafter.

Need to know! Claiming mileage allowance doesn’t stop you claiming for other business travel expenses, such as train tickets and taxi rides. Parking tickets and toll fees while on business can also be claimed as a legitimate business expense.

When can’t mileage allowance be claimed?

You can’t claim mileage allowance for personal journeys, they must be made “wholly and exclusively for business purposes”. And neither can you claim mileage allowance for journeys to and from your usual place of work (ie your commercial business premises). You can claim for travel to a temporary workplace, for example, if you’re a plasterer who needs to travel to different sites and jobs.

Need to know! You cannot claim simplified expenses for a vehicle you’ve already claimed capital allowances for or one you’ve included as an expense when you worked out your business profits. Where necessary, seek guidance from an accountant.

Working out your business mileage

Logging your business mileage is a good idea, as it can make it far easier to later work out and claim your mileage allowance. And your claim is more likely to be accurate and credible if HMRC can see precise details of dates, miles travelled, journeys and reasons. HMRC can request proof during an investigation.

Manually recording your business mileage takes more time and effort, while scraps of paper and notebooks can go missing, so it’s better to record and store your mileage details in a spreadsheet/software, with data stored safely online. Many apps have been created to help business owners track and record their business travel mileage (some even use GPS to automatically measure business mileage).

Some self-employed business owners simply estimate their business mileage, by claiming for a percentage of their vehicle’s total annual mileage. So, if your car does 1,000 miles a month and you can show that half of that is for business use, you can claim mileage allowance of 6,000 miles a year (ie £2,700).

How to claim mileage allowance

Good accounting software will do all of the hard work for you, saving you lots of time and hassle. You enter your business mileage and it calculates your mileage allowance, which you enter into your Self-Assessment tax return. The amount is taken into account and your tax liability is reduced as a result.

If you use simplified expenses to claim mileage allowance, you cannot claim for motoring costs such as insurance, road tax or fuel, because these are accounted for within the mileage allowance.

Need to know! Deliberately inflating your mileage allowance claim can lead to penalties. HMRC takes a very dim view of anyone who deliberately enters false information into tax returns.

Further reading

Visit government website Gov.uk to read Travel – mileage and fuel rates and allowances. There is also an online tool that enables you to Check if simplified expenses could save your business money.

About GoSimpleTax

Income, Expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.

The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. GoSimpleTax does all the calculations for you so there is no need for an accountant. Available on desktop or mobile application.

Tags: allowance, Employed and Self Employed, expenses, income tax, mileage, Self Assessment, self employed

Our guide to unpacking tax jargon

by Madaline Dunn

When it comes to tax, many people often feel intimidated and confused by the jargon used to explain certain terms and concepts. Of course, people must understand the ins and outs of tax jargon themselves because their personal finances can be affected by tax changes.

At The Salary Calculator, we’re here to make sure that you’re all clued up on the meanings behind complex tax jargon.

This article will go through some of the most common words and phrases used when discussing personal tax. So, don’t sweat it; you’ll know the score in no time at all.

Tax terms explained

Agent: This term refers to, usually, an accountant or advisor, who an individual appoints to take care of issues and processes related to HMRC on their behalf.

Annuity: This is a type of retirement income product that pays an individual a fixed payment stream.

Capital Gains Tax: This is a type of tax that is applied to the profits an individual earns in the sale of an asset. It is charged at a flat rate of 18%.

Defined Benefit Pension: Otherwise known as a “final salary” pension, this is the traditional pension plan that pays out a retirement income, calculated based on one’s salary and the number of years they’ve worked.

Defined Contribution Pension: Also referred to as a “money purchase” pension, this is a pension savings product that allows employers and employees to contribute and invest funds to build the pension money pot. 

Earned Income: This refers to the income that an individual receives from employment, self-employment or directorships. This includes wages, salary, tips, bonuses, and commissions.

Foreign Income: This is the income an individual receives from work or services performed outside of the UK. Income received from the Channel Islands and the Isle of Man is also classified as foreign income.

Individuals must pay income tax on foreign income if it comes from:

• Wages earned abroad
• Foreign investment
• Overseas properties
• Overseas pensions

HMRC: This is an abbreviation that stands for HM Revenue & Customs and is a non-ministerial department responsible for dealing with tax and financial obligations.

Income Tax: This refers to the tax that the government levies on an individual’s personal income. Once income exceeds the personal allowance, an individual will pay tax. The amount of tax they pay will vary depending on earnings. 

Inflation: This is an economic term that refers to the rate at which goods and services rise.

Inheritance Tax: This is the tax an individual pays when they have inherited money or property from someone who has died. The standard inheritance tax rate is 40%. However, this is only charged once an individual’s estate exceeds £325000.

IR35: This is a piece of UK tax legislation that exists to identify contractors and businesses that avoid tax by working as “disguised” employees.

Minimum Wage: The National Minimum Wage is the minimum amount of money an employer must pay an employee per hour. These rates vary depending on age and role. The current rates are:

• National living wage for employees aged 23 and over: £8.91
• Age 21-22: £8.36
• Age 18-20: £6.56
• Under 16-17: £4.62
• Apprentices: £4.30

National Insurance (NI) Contributions: Employees and self-employed workers must make National Insurance (NI) contributions if they are over 16-years-old. The amount of NI contributions you make impact your entitlement to state benefits. Individuals must complete at least 35 years of NI contributions to get the full new state pension.

There are a few different types of NI contributions, this includes:

• Class 1 contributions are made by employees who earn £183 a week, who are below the State Pension age
• Class 2 contributions are made by self-employed workers who earn £6,515 or more per year
• Class 3 contributions are voluntary contributions made by individuals to fill in contribution gaps
• Class 4 contributions are made by self-employed workers who earn £9,569 or more per year

PAYE – “Pay As You Earn”: This was introduced way back in 1944 refers to the system through which employers deduct income tax and National Insurance contributions from employees’ salary and send it to HMRC. It’s calculated based on earnings and eligibility for personal allowance.

Personal Allowance: This is the amount of money an individual can earn before they are taxed. The personal allowance amount for 2021/22 is £12,570. It will be frozen at this amount until 5 April 2026.

P45: When an individual stops working for their employer, their employer must give them a P45. This outlines the amount of tax an individual paid on their earnings in the tax year and their tax code.

A P45 is made up of 4 different sections:

• Part 1, an employer must send to HMRC
• Part 1A is given to the former employee for their records
• Part 2 and 3 are for the individuals’ new employer

P60: This is the form that a worker receives each year, outlining the amount of money earned in a year. It also states the amount of National Insurance contributions made and the amount of Pay As You Earn (PAYE) income tax. 

Self Assessment: This is the system used by HMRC to calculate and collect income tax and National Insurance (NI) contributions. Self-employed and freelance workers must submit a self-assessment form for each tax year.

Starter checklist (formerly the P46 form): This is the form that replaces the P45 form in cases where their former employer did not give an individual one.

Take-home Pay: Take-home pay, otherwise known as net pay, is the amount of money an individual receives per month after tax and any other deductions have been made.

Tax Code: In the UK, everyone paid via the PAYE scheme is allotted a tax code from HMRC, which indicates how much tax must be deducted. The most common tax code appears as a set of numbers followed by a suffix. 

Tax Credits: This is a type of government benefit payout given to individuals who receive lower incomes. This benefit comes in two forms, working tax credits and child tax credits.

Tax Rebate: This is a refund of tax given to an individual when they have overpaid tax.

Tax Year: This is the time period covered by a tax return. It begins on 6 April and ends the following 5 April.

Unique Taxpayer Reference: This is a 10-digit number issued to every taxpayer in the UK.

Tags: Employed and Self Employed, HMRC, income tax, national insurance, Pay As You Earn, personal allowance, tax rates