As we settle in to the 2022/23 tax year and all the new rules that come with it, it’s a great time to review your tax affairs. Now is the time to check to ensure you’re taking advantage of all the relief available to you and have taken all the opportunities to reduce your tax liabilities. Here are a few changes that you should know about this tax year.
This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice.
National Insurance Increase
National Insurance increased by 1.25% this year, which means for those earning £30,000, there is an additional cost of £255 and for those earning £50,000, the cost is £505. The threshold increased to £9,880 this year, which means you don’t pay anything if you earn less than that and if you earn between £9,880 and £50,270 per year, you pay NI at a rate of 13.25% and 3.25% on earnings above £50,270.
From July 2022, that threshold increases yet again to £12,570 to align with the personal allowance. One possible solution to combat this rise is to consider salary sacrifice schemes for pensions and other benefits before your salary is paid in order to circumnavigate the increase.
State Pension Increase
To align with inflation, state pension payments increased by 3.1%. The full new State Pension increased to £185.15 a week while the full basic State Pension payouts rose to £141.85 a week.
Dividend tax rates rise
As you may know, dividend tax rates are dependent on your income and are payable on earnings from dividends above £2,000 a year. Self-employed company directors who pay themselves through a combination of tax and dividends will be affected too. Any shares held outside of ISAs or pension accounts may end up costing you more in tax than the income you earn from them. This tax year, dividend rates increased by 1.25% bringing the basic rate for dividend tax rates to 8.75%, 33.75% for higher rate taxpayers; and 39.35% for additional rate taxpayers.
Frozen thresholds
This year, nearly all thresholds will be frozen. This will contribute to ‘fiscal drag’ because as wages rise, more people will be subject to a higher tax rate because they aren’t rising at the same rate because the threshold won’t rise to meet them. The personal allowance remains at £12,570, and the threshold for paying higher rate tax remains at £50,271.
Child Benefit increases
To align with inflation and other benefits, Child Benefit payments increased. Parents will now be able to receive £21.80 a week for their eldest or only child and £14.45 a week for any additional children. This works out at £1,133.60 a year for one child, and £751.40 a year for subsequent children. Be aware: if one parent earns more than £50,000, the Child Benefit will need to be paid back through their tax return and the entire benefit will be due back if they earn more than £60,000.
Need help navigating these new rules?
It’s tough to stay on top of the ever-changing tax laws when you’re a busy medical professional. But it must be done if you want to reduce your tax liability and save as much as possible.
To ensure you’re doing so and you’re still on track with all your other financial goals, get in touch with your trusted financial adviser. We’ll ensure your financial plan includes an up-to-date strategy that takes in all the new tax rules and there’s no disruption to your overall portfolio.
