What’s on the tax horizon for 2022?
By Susan Cattell, Head of Tax Technical Policy
20 December 2021
Susan Cattell takes a look at some of the tax issues Members in Practice will be dealing with in 2022.
Self Assessment (SA) Peak January 2022
At the beginning of 2021, HMRC belatedly announced that because COVID-19 was likely to mean more taxpayers filing late (with valid coronavirus-related reasonable excuses), no late filing penalties would apply for SA returns filed online by 28 February 2021. At the present time no similar relaxation has been announced for returns due at the end of January 2022.
We have been receiving feedback from Members who are experiencing problems with delayed receipt of information from clients and with issues arising from poor HMRC service levels. Looking ahead, Members are concerned that Omicron could give rise to resource issues after Christmas, for them and for HMRC. ICAS raised these concerns, and the possibility of a relaxation for January 2022, with HMRC at the Representative Body Steering Group meeting in December. If there is to be any relaxation in 2022, we have asked for it to be announced soon so that it is more helpful to agents and taxpayers, not left until the last minute as happened in 2021.
Expansion of Making Tax Digital (MTD) for VAT
From April 2022, businesses registered for VAT, whose taxable turnover is below the VAT threshold, will be required to operate MTD for filing their VAT returns and will need to keep digital records. Larger businesses have been within MTD for VAT since April or October 2019, and about a quarter of smaller businesses have already chosen to join MTD voluntarily, so many Members will have experience of helping clients to make the switch.
Preparation will be important for the remaining smaller businesses who have not yet taken steps towards MTD: VAT Notice 700/22: Making Tax Digital for VAT explains the regime and will be relevant to all VAT registered businesses, not just those above the VAT threshold, from April 2022. HMRC also publishes guidance on software suitable for MTD for VAT.
Making Tax Digital for Income Tax Self Assessment (ITSA) pilot
Following representations from ICAS and other professional bodies, the introduction of mandatory MTD for ITSA was delayed by one year. It will therefore apply from April 2024 for most unincorporated businesses and landlords with total business or property income above £10,000 per year. General partnerships will not have to join until April 2025, and Limited Liability Partnerships and partnerships with corporate members will be later still.
Access to the pilot is currently restricted to a small number of businesses but HMRC is planning to expand access considerably from April 2022. Businesses which would like to experience at least one full cycle in the pilot may want to talk to their software providers and keep an eye on HMRC’s eligibility criteria to find out when they will be able to join.
Getting ready for basis period reform
Following the consultation in 2021 (to which ICAS responded), the government has decided to go ahead with basis period reform for unincorporated businesses. This will mean that in future assessable business profits will be calculated for the tax year, rather than on the ‘current year’ basis (which used the profits of the period of account ending in the tax year).
The professional body representations on MTD for ITSA also covered the interaction with basis period reform. The switch to using the tax year basis was also delayed by one year and will now take effect for the 2024/25 tax year, with 2023/24 as the transitional year.
There should be little impact on the majority of businesses which already make up their accounts to 31 March or 5 April. However, businesses which make up their accounts to other dates may wish to start their preparations in 2022, particularly if one option might be to change their accounting date to 31 March or 5 April.
Other issues to think about include the likely impact of the transitional rules and, if accounting dates cannot be changed, the ongoing need to apportion profits and potentially submit returns based on provisional figures. The government has promised further engagement with stakeholders to explore whether any administrative or policy easements could be introduced to minimise the burdens caused by having to submit returns based on provisional figures. We expect these discussions to take place in 2022; those affected may wish to contribute directly, or via ICAS (send your views to tax@icas.com).
Trust Registration Service – expansion to non-taxable trusts
The Trust Registration Service (TRS) was originally introduced for taxable trusts in 2017, to comply with the EU Fourth Money Laundering Directive. In line with the Fifth Money Laundering Directive (which the UK has adopted), it is now being expanded to cover non-taxable express trusts, subject to exemptions for some types of trust.
Legislation was put in place in 2020, with the registration deadline for non-taxable trusts being set at 10 March 2022. However, this deadline is currently in the process of being extended to 1 September 2022, due to delays in tweaking TRS to accommodate non-taxable trusts.
There is guidance for trustees on GOV.UK and HMRC is also publishing a detailed TRS manual in stages.
Increase in rates of income tax on dividends and increase in National Insurance Contributions (NIC) rates
The government announced some important increases in September 2021, to take effect in 2022 and 2023:
- From April 2022 NICs for working age employees, self employed and employers will increase by 1.25% but will return to 2021/22 levels from April 2023.
- From April 2023 the 1.25% Health and Social Care Levy will be formally separated out from NICs – this will also apply to employment and self employment income of individuals working beyond State Pension age.
- From April 2022 the rates of income tax on dividend income will increase by 1.25%:
- The dividend ordinary rate will be 8.75%, the dividend upper rate will be 33.75%, the dividend additional rate will be 39.35% and the dividend trust rate will also be 39.35%.
Annual Investment Allowance (AIA) extension
From January 2016 the level of AIA was intended to be permanently set at £200,000. However, Budget 2018 temporarily increased it to £1,000,000 for two years from 1 January 2019 – in November 2020 this was extended by a further year. It should therefore have reverted to £200,000 after 31 December 2021. However, the Autumn Budget in 2021 announced that it would be extended again for qualifying expenditure on plant and machinery incurred during the period from 1 January 2022 to 31 March 2023.
The timing of the extension is linked to the super-deduction and 50% first year allowance for special rate assets, both of which are available to companies until 31 March 2023, ahead of an increase in the corporation tax (CT) rate to 25% for larger companies from April 2023. The policy paper covering the AIA extension noted that “it is intended to have positive outcomes for businesses by supporting and encouraging business investment, particularly those ineligible for the super-deduction, and by simplifying the tax relief for such investment”. Businesses planning to take advantage of the extension will need to bear in mind the transitional rules which will apply where a business has a tax period which spans the operative date of 1 April 2023.
Let us know your views
ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other administrative issues are discussed, and we raise problems being encountered by Members. We welcome Members’ input to inform our work – please email tax@icas.com to share your insights and feedback.