Biz Extra
Published: March 7, 2022 | Updated: 6th September 2023
Saffery Champness Partner Jamie Lane looks at the challenges and areas to navigate in your business in 2022.
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The corporate business environment is one of significant change in recent times, with added regulation and more scrutiny being placed on areas such as environmental impact.
I’m keen to highlight some of the pitfalls that could catch out those who aren’t aware of the new obligations or tax changes coming down the track.
Plastic packaging tax
This is a new tax and will take effect from April 2022, levied on plastic packaging containing less than 30% recycled plastic, with the tax charged at a flat rate of £200 per tonne.
The aim of the tax is as a financial incentive for businesses to use more recycled plastic in their packaging, and to stimulate increased recycling and collection of plastic waste, diverting it away from landfill or incineration.
Health and Social Care Levy
The government announced a temporary increase in National Insurance rates of 1.25% for both employees and employers from April 2022.
From April 2023, this will be replaced by a separate Health and Social Care Levy. The aim is to raise around £13 billion a year for spending on health and social care across the UK, and alongside these changes, dividend income tax rates will also increase by 1.25% from April 2022.
Remuneration planning for director shareholders
In many cases, in the past it has been more tax efficient for director shareholders to take a larger proportion of dividends compared to salary.
But the introduction of the Health and Social Care Levy, alongside the increase in dividend rates by 1.25% from April 2022, and the increased rate of corporation tax relief for salaries of 25% from April 2023, means it is worth looking again at the numbers to confirm whether changes are required to the remuneration strategy for director shareholders.
In line with the increase in dividend rates, the temporary (s455) tax charge payable by companies on loans to its shareholders will increase by 1.25% to 33.75% of the outstanding loan from April 2022.
What does net zero mean for businesses?
Throughout 2021, there was a steady stream of initiatives and policies by the government regarding their net zero ambitions, culminating in the COP26 summit in Glasgow. Some of the key impacts for UK businesses are:
The weight of disclosure and operational requirements on businesses is likely to increase over the next decade, though it is to be hoped this will be supported by targeted grants to assist businesses in the transition.
Enhanced capital allowances for companies
Expenditure incurred by companies on new and unused qualifying plant and machinery during the two-year period from 1 April 2021 to 31 March 2023 can attract the following unlimited enhanced capital allowances:
The annual investment allowance (AIA) can also provide a 100% capital allowance for companies up to an annual limit. It was announced in the 2021 Autumn Budget that the annual limit of £1 million will be extended until 31 March 2023.
In many cases, the order of claiming these capital allowances by companies would be as follows, reflecting the amount of upfront tax relief available:
Temporary reduced VAT rate for the hospitality sector
The current temporary rate of VAT of 12.5%, which applies to certain supplies within the hospitality sector, will revert to the standard rate of 20% on 1 April 2022. Eligible supplies include catering, hotel and holiday accommodation and admission to visitor attractions. Businesses in the sector are advised to maximise the opportunity of applying the 12.5% whilst they still can by taking advance payments and issuing tax invoices before 1 April 2022 for supplies to be made after that date.
Extended carry back of trading losses
Trading losses incurred by trading companies in accounting periods ending during the two-year period from 1 April 2020 to 31 March 2022 can be temporarily carried back against profits of the previous three years (rather than the usual one year) on a last-in last-out basis.
The trade losses available for carry back to one year will remain uncapped.
Trade losses available for carry back to the extra two years will be capped at a maximum of £4 million (being £2 million for each of the accounting periods ended in 2020-21 and 2021-22). There is an opportunity for companies to obtain corporation tax repayments earlier.
But, where cashflow is not the key driver, it is important to run projected numbers to understand the rates that corporation tax relief can be obtained alternatively before deciding to carry back trading losses, eg carrying the losses forward against future taxable profits given the increase in corporation tax rates to up to 25% in April 2023.
Compulsory Making Tax Digital for VAT
Making Tax Digital for VAT (MTDfV) was first introduced in April 2019 and it has applied to VAT registered businesses and persons whose taxable turnover (turnover subject to VAT) exceeds £85,000 per annum. For VAT periods starting on or after 1 April 2022, MTDfV will be extended and become mandatory for all VAT registered businesses and persons regardless of size of taxable turnover.
Under MTDfV, VAT returns are submitted either through functionally compatible software that interfaces with HMRC’s API software, or via a software tool (typically known as bridging software) that links the accounting and VAT records to HMRC for the purposes of filing a VAT return. Further, VAT records must be held digitally and there must be digital links created to ensure VAT data travels along a ‘digital journey’ rather than being manually transferred from system to system, and from spreadsheet to spreadsheet before it reaches a VAT return template.
New VAT penalty regime
From 1 January 2023, there is a new penalty regime that applies when VAT returns and VAT payments are submitted or paid late. It replaces the current default surcharge mechanism. The new regime separates late payments from late filings in terms of how penalties will be levied. For late payments, no penalty is applied if the VAT is paid late but is paid in full within 15 days of the due date, or if a time to pay arrangement is proposed and accepted by HMRC. Thereafter, penalties of 2% and 4% of the amount of VAT due will be levied between 16 and 30 days overdue and over 30 days respectively.
Penalties based on a points system will be applied for late filing of VAT returns, with 1 point applying to each submission deadline missed. A £200 penalty is levied when four points have been incurred for quarterly VAT filers (five points for monthly filers). Each subsequent instance of a late submission will result in another £200 penalty. If certain conditions are met over time, the points are reset to zero. Where businesses have previously been in a repayment position or had nil returns and filed VAT returns late there were never any penalties, but the new rules mean such businesses will be penalised for failing to file returns on time.
For any advice on the areas noted above, or for any questions relating to your business in 2022, please get in touch with your usual Saffery Champness contact, or speak to Jamie Lane.
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Getting to know our team at Saffery Champness
Name: Gemma Lashbrook
Role: Director – Accounts
Time at Safferys: 3 months
What’s the best bit about your job?
I find people and puzzles fascinating and I find that this job is the best way to combine both of those interests! I deal with Landed Estates where many of my clients are families so finding the best solution for individuals and the family as a whole can be like moving around the many pieces of a puzzle. There is a real sense of achievement when we help people make sense of their goals and ambitions, both personally and professionally.
The culture of Saffery Champness is really important to the business and the people within it – what do you think you bring to the team and what do you contribute?
Having only recently joined Safferys, the culture is one of the things which attracted me to the firm. I was at my previous firm for 13 years heading up a similarly sized team and I am excited to bring my experience and to see how differently Safferys do things.
If you weren’t doing this role, what might you be doing?
I would have liked to have been a book editor, being paid to read sounds like a dream!
What do you enjoy doing outside of work?
I have just started a self-build extension which is keeping me busy at the moment. Otherwise I like to get out into the countryside with my family.
Tell us something about yourself that we don’t know
I have a degree in criminology which is not a typical route into accountancy
Who or what inspires you?
I am inspired by those who are not afraid to speak out for their beliefs. I am a huge fan of Jack Monroe, a food writer and activist who campaigns on poverty issues. She has recently influenced how the ONS report on inflation and price rises.
What’s your favourite place in Dorset?
Being a Wiltshire resident, my favourite places in Dorset tend to be where I have been on holidays – Osmington and Kimmeridge Bay are always favourites of mine for camping, or Lyme Regis where my uncle runs a fantastic B&B (Greenhill House) for a very luxurious alternative to camping!
Give 3 words to describe yourself
Curious, multi-tasker, proactive
