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Blog: What’s in the Finance Act 2022?

At the heart of the UK’s fiscal legislative system sits the Finance Act: the main method by which changes to tax and finance become law.

Each year, the tax measures announced in the Chancellor’s Budget are set out in a single bill. Like other legislation, this bill must pass through various stages of readings in both the House of Commons and House of Lords, before finally being presented to the Queen to receive royal assent.

Once a bill has passed this stage, it enters UK law as an Act of Parliament.

This year’s Finance Bill received royal assent on 24 February, and at more than 200 pages long in its printed format, it covers a wide range of topics.

To save you scouring the document yourself, we’ve summarised the key measures for businesses here.

Dividend tax rates

Alongside the upcoming increases to National Insurance rates (which have been legislated for separately) the rates of income tax at which dividends are taxed are set to rise from 6 April 2022 onwards.

The ordinary, upper and additional rates will each rise by 1.25 percentage points – to 8.75% 33.75% and 39.35% respectively. The dividend trust rate will also increase to 39.35%.

 

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Basis period reform

Changes are coming to the tax system, which are expected to affect around half a million self-employed business owners and partners.

Currently, a business’s profit or loss for a tax year is the profit or loss for the year up to their accounting date. This is called the ‘basis period’.

From April 2024 onwards, the system will change to a ‘tax year basis’, where the profit or loss for the tax year itself is allocated to that tax year, regardless of the business’s particular accounting date.

The 2023/24 tax year will act as a transitional period, in which all businesses’ basis periods will be aligned to the tax year, and they’ll receive any tax relief due as a result of those periods overlapping.

As the majority of businesses’ accounting dates fall in line with the tax year anyway, on 31 March or 5 April, the measure isn’t expected to affect all businesses.

Annual investment allowance extension

The annual investment allowance is a 100% capital allowance that businesses can claim for qualifying expenditure on plant and machinery.

The level of the allowance was temporarily raised from £200,000 to £1 million for two years from 1 January 2019, with the aim of encouraging higher levels of business investment.

This measure was extended by an extra year from January 2021 – then, in Budget 2021, it was further extended to apply until 31 March 2023.

Creative sector tax reliefs

The Finance Act also includes changes to a set of corporation tax reliefs for cultural and creative businesses.

In particular, museums and galleries exhibition tax relief was previously due to expire on 31 March 2023 – this has been extended until 31 March 2024.

This relief, along with theatre tax relief and orchestra tax relief, will also be increased to offer higher rates.

Anti tax avoidance measures

HMRC is gaining new powers to clamp down on promoters and enablers of tax avoidance schemes.

These include the ability to seek freezing orders, apply additional penalties, present winding-up petitions, and name the promoters of these schemes to warn the public.

Economic crime levy

A new levy will apply from April on entities that are regulated for anti-money laundering (AML) purposes.

These include:

  • credit or financial institutions
  • auditors, insolvency practitioners, accountants and tax advisers
  • legal professionals
  • trust or company service providers
  • estate agents and letting agents
  • dealers of high-value items (eg art market participants and auction platforms)
  • cryptoasset exchange providers and custodian wallet providers.

Small entities, with under £10.2 million in UK revenue, will be exempt. Others will pay a fixed annual fee, at £10,000 for medium entities, £36,000 for large entities, and £250,000 for very large entities.

Other changes

These are just a few of the changes covered in the Finance Act – others include a new tax on the largest residential property developers, reform of the UK tonnage tax regime, a surcharge on banking companies, and more.

To find out more about any of these measures, or to talk about upcoming changes that affect you, get in touch.