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The government has announced several tax increases on contractors and employees as it looks to bridge the funding gap in health and social care.
From April 2022, National Insurance Contributions (NICs) for employees and employers will increase by 1.25% along with a matching increase in the tax paid on dividends.
Recent changes to IR35 (off-payroll working) legislation mean that many contractors are looking to set up with umbrella companies in the UK.
Although working through an umbrella company is much easier than running your own limited company, it can be confusing if you haven’t done it before. That’s why we’ve prepared this introductory guide with some of the most important things you need to know before you join an umbrella.
Tax charities TaxAid and the Low Incomes Tax Reform Group (LITRG) have expressed concern about the number of ‘umbrella’ workers being pushed into tax avoidance schemes without their knowledge.
Speaking to the FT, the charities said that more and more workers were getting in touch to complain about non-compliant umbrella companies.
LITRG said some unscrupulous umbrella companies were failing to deduct tax on wages, effectively paying workers via ‘disguised renumeration’, which is banned by HMRC. Affected workers included agency nurses and supply teachers.
The tax increase has been created by the Government to combat the NHS backlog. It will also fund social care initiatives, such as care home costs and disease prevention.
From April 2022, National Insurances contributions will rise by 1.25% for employees and the self-employed who earn over the minimum threshold. Employers NI contributions will also be increased by 1.25%.
The increase to NI contributions will only last 1 year, with rates returning to the current level in April 2023. However, the 1.25% tax is here to stay and will be known as the ‘Health and Social Care Levy’ from 2023.
How do you know if you need to complete a tax return?
The tax year is from 6 April to 5 April the following year. You’ll need to send a tax return if in the last tax year:
If you are employed in the UK, you will have a tax code. Tax codes tell employers and employees how much tax should be taken out of a pay packet before it goes to the employee.
The government has committed to creating a new enforcement body to uphold vulnerable workers’ employment rights as part of the ‘Good Work Plan’.
Several existing organisations will be brought together for the new, single workers rights body. It will also be given new powers to deliver more effective protection for flexible workers, such as those working through umbrella companies.