Let us help you make 2022 a low tax year!

How to Pay Less Tax in 2022 with These Simple Tips

Well, 2022 has arrived and here at TAG Accountants, we are still not sure how 2021 seemed to pass so quickly. That said, given that the tax return season is upon us, we thought we would remind our readers of some of the great opportunities that exist to help keep tax bills down.

The Super-deduction continues….

Many businesses may have felt unable to make capital investment due to the impact of COVID on cash flow and so did not take advantage of the new super-deduction for investing in new plant in 2021, but what about 2022?

This tax incentive, which started on 1 April 2021 continues until 31 March 2023, enables companies to deduct 130% of the cost of new plant and machinery from their profits where that plant would normally be included in the general capital allowances pool. For example, if a company buys a new commercial vehicle costing £50,000, they can deduct £65,000 from trading profit in that year saving £12,350 in corporation tax.

It is worth noting that there would be a clawback charge on disposal of the asset, which could be as much as 130% of the proceeds received on disposal of the asset.

There is currently no financial limit on the amount that the company can spend on new equipment qualifying for 130% tax relief.

And so does Annual Investment Allowance

Under the super-deduction rules, second-hand plant and machinery do not qualify for the 130% super-deduction but it can still qualify for the 100% Annual Investment Allowance (AIA) which remains available at up to £1 million annually until 31 March 2023.

Note that whilst the 130% super-deduction only applies to limited companies, AIA is available to sole traders and partnerships too.

Just a reminder that there is a further 100% first year allowance for the cost of buying a new zero-emission car for the business. Note that prior to April 2021 the allowance was available for cars with emissions below 50g per kilometre, but they now need to be zero-emission to qualify.

Other tax planning ideas for 2022

At this time of year, business owners often work on their business strategy for the coming year, but it is also a suitable time to start planning your tax affairs before the end of the tax year on 5th April.

With that in mind, here are some timely reminders for your consideration.

i) ISA allowance

This is a straightforward tax planning point about maximising your ISA allowances for the 2021/22 tax year (still up to £20,000 per individual).

ii) Tax relief through EIS and SEIS

If your next tax payment due on 31 January is more than you expected, there is still scope to reduce the liability if you are prepared to take some risk. This can be done by investing in a company that qualifies under the Enterprise Investment Scheme (EIS) or under Seed EIS.

This type of investment enables you to deduct 30% or 50% respectively of the amount invested from your income tax bill, e.g., £10,000 invested in a qualifying EIS company will enable you to deduct £3,000 from your tax bill. Whereas normally the shares need to be issued in the tax year in which you want relief, it is also possible to invest in the following tax year and then carry back the relief to the previous year.

It is important to get independent financial advice on the investment as there is risk involved, particularly Seed EIS companies which are smaller start-up companies – we can refer you to an advisor if required.

iii) Using your pension allowance

It is also worth considering increasing your pension contributions before 5 April 2022, as any unused annual pension allowance is lost after three years and contributions up to your annual allowance still get full tax relief. In addition, your pension pot can be a valuable tool in inheritance tax planning.

Rumours remain that restricting tax relief on pension contributions remains on the Chancellor’s agenda so it may be worth maximizing your position now just in case there are any negative changes.

For most taxpayers, the maximum pension contribution continues to be £40,000 each tax year. This limit covers both contributions by the individual and by their employer into their pension fund. Any unused allowance for a particular tax year may be carried forward for three years and can be added to the relief for the current year, but it will then lapse if unused. E.g., any unused pension allowance for 2018/19 will lapse on 5 April 2022 if unused.

iv) Tax planning and your will

It is essential to have a will in place and, if you already have one, to ensure it does not need to be updated. Many people this is something to leave until later in life, but it is important to get one in place, especially once property is purchased or once you have children.

If there is no will in place on your death, there are statutory rules which dictate how your assets are distributed on death. Those statutory intestacy rules may not be tax efficient, and you may not make your desired provision for your unmarried partner or for the guardianship of your children.

It is worth talking to us about the tax implications of your plans before you instruct a solicitor to get your will drafted or updated. We can refer you to effective advisors to create or update your will.

v) 31 January 2022 tax payment

Hopefully, you have already sent us your information and we have submitted your return to HMRC!

For those that have not yet submitted information due to Coronavirus, HMRC has stated that they will waive late filing and late payment penalties for one month. As a client, you can then use this time to send in your information to us so we can then urgently complete a tax return and submit it to them on your behalf.

You will not receive a late filing penalty if your tax return is filed online by 28‌‌ ‌February 2022.

However, Interest will be charged from 1‌‌ ‌February on any outstanding liabilities you have not paid. You will not be charged a 5% late payment penalty if you pay your tax or make a ‘Time to Pay’ arrangement with HMRC by 1‌‌ ‌April 2022.

If you cannot pay your tax bill in full by 31 January 2022 because of financial difficulties, HMRC may be prepared to put in place a payment plan. Any payment plans must be in place by midnight on 1‌‌ ‌April 2022 to avoid a late payment penalty. If you owe less than £30,000 on 31 January 2022, you may be able to set up a payment without speaking to them by setting it up directly through your Government Gateway account.

Need help with any of that?

It is a great time of year to plan and take some action.

As always, we are here to help, so if you would like to take advantage of some of the tax planning opportunities available in 2022 and beyond, just book an appointment with one of our specialist tax services team here at TAG Accountants Group, Wolverhampton by calling 01902 783172. Alternatively, complete our contact form HERE. and we will be back in touch with you.

We very much look forward to helping you make 2022 a lower tax year.