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What taxes do small businesses pay? | Business tax rates UK
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Increase in National Insurance rates and NICs
From 6 April 2022, the rate of National Insurance contributions (NICs) will increase by 1.25 percentage points, but only for one tax year, according to the government, then a new separate health and care levy will be introduced. The additional tax revenue will be spent on the NHS, health and social care across the UK, according to the government.
- For tax year 6 April 2022 to 5 April 2023
Employer Class 1, employee Class 1, Class 1A, Class 1B and Class 4 NICs will increase by 1.25 percentage points.
- From 6 April 2023
The NIC rates will return to 2021/2022 levels and the levy will become a separate new tax of 1.25%.
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Employee NICs
Employees will face an increase of 1.25 percentage points in the NICs that they pay for the 2022/23 tax year, with the separate 1.25% levy payable from 6 April 2023. Employers must deduct the additional NICs from the employee’s earnings and pay it to HMRC via PAYE and the company’s payroll.
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Self-employed NICs
If you’re self-employed and your profits are above the earnings threshold, you’ll pay the 1.25 percentage points increase in NICs for the 2022/23 tax year and the separate 1.25% levy from 6 April 2023.
- The NIC increase does not apply to Class 2 NICs, although Class 2s on earnings between £6,725 and £9,880 will increase to £3.15 per week in 2022/23 (from £3.05 in 2021/22).
Need to know! The income threshold after which people start paying National Insurance will rise to £12,570 in July 2022, a £3,000 a year increase.
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Employer NICs
If your business pays Class 1, Class 1A or Class 1B NICs, you’ll need to start paying the 1.25 percentage point increase from 6 April 2022 and the new, separate 1.25% levy from 6 April 2023.
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NIC threshold increases 2022/23
There are some important tax changes when it comes to the NIC threshold:
- The upper earnings limit will remain at £50,270 (£4,189 per month or £967 per week).
- The income threshold after which people start paying National Insurance (ie the primary threshold) will rise to £12,570 in July 2022, a £3,000 a year increase.
Reversal of National Insurance rate increase
In the time since this article was first published, there has been considerable upheaval at the top of government. The Chancellor who announced the 1.25 percentage points increase, Rishi Sunak, is now the Prime Minister and has been under pressure to reverse the controversial rates increase.
As such, from 6 November 2022 the main and additional rates of Class 1 employee NICs will be reduced by 1.25 percentage points to 12% and 2%. Class 1 employer NICs will also be reduced by 1.25 percentage points to 13.8%.
The reversal to the National Insurance increase will only apply prospectively from 6 November 2022.
Dividend tax increase
From 6 April 2022, for one year, there will be a dividend tax increase of 1.25 percentage points, with the government saying the additional revenue will be used to “support the NHS, health and social care”, following the additional financial pressures brought by COVID-19. A new separate 1.25% levy for the same purpose will then be introduced for 2023/24 and beyond.
2022/23 dividend tax rates and thresholds:
- If you’re a basic rate Income Tax payer, dividend payments over £2,000 in 2022/23 will be subject to 8.75% Income Tax (if your annual income exceeds the Personal Allowance).
- If you’re a higher rate Income Tax payer, dividend payments over £2,000 will be subject to 33.75% Income Tax (if your annual income exceeds the Personal Allowance).
- If you’re an additional rate Income Tax payer, dividend payments over £2,000 will be subject to 39.35% Income Tax (if your annual income exceeds the Personal Allowance).
Use our Dividend Tax Calculator to find out how much you will pay under the dividend tax increase for the tax year 2022 – 23.
Changes to VAT
In July 2020, the government announced a temporary VAT rate reduction for the hospitality, hotel and holiday accommodation sectors, from 20% to 5%, in response to the economic impact caused by Covid-19.
In the spring 2021, the 5% rate of VAT was extended until 30 September 2021. From 1 October 2021, the hospitality sector VAT rate increased to 12.5%, but after 31 March 2022, it will return to the standard rate of 20%.
The major VAT change in 2022/23 comes in April, when compliance with Making Tax Digital (MTD) for VAT rules is compulsory for all VAT-registered businesses, whether their VAT-taxable income is above the VAT threshold (£85,000) or not. VAT-registered business will need to use MTD-compliant third-party software to keep digital VAT records and submit their quarterly VAT returns to HMRC.
Use our Online VAT Calculator to find out how much VAT you will need to pay for the current tax year.
Capital Gains Tax
Capital Gains Tax rules that were introduced in October 2021 that extend reporting requirements will carry on in 2022/23. Previously, you would have had just 30 days to report any taxable gains made and pay the CGT you owe to HMRC on a taxable gain, but you now have up to 60 days. The rate of Capital Gains Tax remains the same, it’s just that you have twice as much time to report a taxable gain and pay tax on it.
National Minimum Wage increase
From 1 April 2022 the following hourly pay rates must be paid:
- Aged 23 and above (national living wage rate): £9.50
- Aged 21 to 22 inclusive: £9.18
- Aged 18 to 20 inclusive: £6.83
- Aged under 18 (but above compulsory school leaving age): £4.81
- Apprentices aged below 19: £4.81
- First year apprentices aged 19 and over: £4.81
Inheritance Tax 2022/23
The Inheritance Tax threshold will remain at £325,000. The standard Inheritance Tax rate will remain at 40% and this is only payable on the value of an estate that’s above the threshold.
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