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do you know what taxes you pay?
The Government has published the new 2022 spring Personal Tax fact sheet stating they are raising the level at which people start to pay National Insurance contributions. Their objective is that every single working person will get their FIRST £12,500 pounds earned as tax free.
Currently, employees who are earning above £9,880 have to pay National Insurance contributions, but from July 2022 the threshold is increasing to £12,570. This means a typical employee will have £330 extra per year in their pockets! (Despite the earlier introduction of the health and social care levy.)
But not only employees will benefit from these threshold increases. Self employed people with small profits will save £165 per year as-well.
At the moment, self employed National Insurance contributions are deducted from incomes that are above £6,725 which from July 2022 will be increasing to £12,570.
Another important update from the government is that in 2024 the basic tax rate will go down from 20% to 19% - which means that the basic tax rate payer will earn an extra £175 per year on average.
health and social care levy
Most workers in the UK that are liable to pay National Insurance contributions has noticed an 1.25% increase in taxes deducted.
Why?
This is the transitional increase to the taxes before the actual Health and Social Care Levy to take place from 6 April 2023. Introduced by Government to directly support health and social care bodies across the UK.
The new Health and Social care levy 1.25 % will be payable on the amount above £9,568 and above £12,570 from July 2022 due to the NI Contribution threshold increase. This affects all employees, employers and self employed people already liable to pay National Insurance Contributions.
It is expected that basic rate tax payers will be paying additional £180 and the higher tax rate payers additional £715 per year.
Actual losses will vary depending on the individual circumstances.
MDT for itsa !!!
Making Tax Digital for Sole Traders Self-Assessment
Are you as a sole trader, property business or a landlord earning over £10, 000? Have you heard of the new system called MTD for ITSA the government is implementing from April 2024? We understand change can be confusing and scary, but do not worry, OBS accounting is here to walk you through it…
What is MTD (Making tax digital) for ITSA (Income tax self-assessment) and how it will affect your business??
From April 2024, you will be required to keep electronic accounts and bookkeeping records, make quarterly submissions and provide an end of period statement submissions. All of this has to be done using accounting software, and the data will go straight to HMRC. If you miss a filing deadline, you will be receiving penalty points which will result in fines.
If that sounds frightening, don’t worry! It simply means instead of managing your financial transactions manually you will have to use a computer and do so more frequently. You can do this yourself or hire us to take care of it for you.
This is not a new scheme; VAT registered businesses have already been using this since 2019. After proving to be successful and highly effective, the government has decided to make MTD a requirement for all sole traders and landlords that have an annual income above £10, 000. At the moment you might be eligible to enter MTD voluntarily, however from 2024 this system will be compulsory.
How will you benefit from MTD?
We are delighted to let you know that there are more positives than negatives with this change. It will modernise and simplify your accounting process - resulting in fewer mistakes. Instead of dealing with stacks of paperwork collected over a whole year, all you have to do is simply give your financial transactions to your accountant every quarter and they will submit all the necessary data into the software, where it flows instantly to HMRC.
Alternatively, you can keep accurate and detailed track of your finances digitally and submit your tax returns yourself as long as you are using HMRC approved software.
Not only is this a much more manageable and controlled way of keeping track of your taxes and avoiding any costly mistakes, but it will also give you the chance to budget for your tax bill and avoid late payment penalties. And guess what? This process will save you tons of time and stress! Allowing you to focus on growing your business or spending more quality time with your loved ones.
Are there any negatives?
Firstly, it might be tricky to adapt to this new system If you are not used to the digital world, Secondly, using software such as XERO, QuickBooks, Sage etc. will add an extra cost. With additional deadlines and possible fines due to missing quarterly taxes, this change can (understandably) feel daunting. However, this can be dealt by hiring an experienced and trustworthy accountant, doing plenty of research, attending available webinars.
Can you prepared and submit MTD yourself?
Yes, you may choose to do it yourself and opt out from hiring an accountant. The most important thing is to download the accounting software (HMRC says free software will be made available for clients) and ensure updates and patches are installed in time. You can do this by contacting the software vendor. You have to ensure that all incomes and expenses are accurately recorded and always be on time with quarterly submissions, while also providing an end of period statement submissions.
When do you have to sign up for MDT for ITSA?
Currently, no one is obligated to sign up for MDT, although if you would like to get some practice and experience you are able to enter on a voluntary basis. If you start your business before 06/04/23 you will need to submit your self-assessment as normal and HMRC will tell you if you need to sign up for MDT. If you start your business after 06/04/23 and your income will be more that £10,000 you can sign up any time. By 06th April 2024 all sole traders and landlords will be legally required to submit their self-assessments digitally if they qualify.
By 06th of April 2025 partnerships with earnings over £10,000 will need to sign up for MDT too.
OBS accounting is dedicated in guiding you through new challenges. We are always on the lookout for fresh updates and news from HMRC, and are always thinking of how to provide you with any further help for your financial management. If you have any further questions and are interested in our services, don’t hesitate to book a free consultation.
