2022: A transition year for tax and trade

There are a wide range of tax changes coming in 2022, as the UK looks to emerge from the pandemic and set off on the road to net zero. Part of the landscape for Tax this year will be a pivot away from the reactive policies of the past two years of introducing Covid measures and managing Brexit.  The flagship tax rise due this year is a 1.25% rise in National Insurance Contributions to contribute to the government’s plan for health and social care.  On top, we’ll see brand new taxes introduced, relief freezes, corporate tax reform, and border changes all contributing to an increasingly complex tax system with a higher overall tax burden.

The new normal

The latest Covid support measure was announced as recently as December 2021: a grant of up to £6,000 for hospitality and leisure businesses is now available. However, despite this new measure, 2022 is scheduled to be a year where Covid support continues to wind down.  Flagship schemes like the Self Employment Income Support Scheme and the Coronavirus Job Retention Scheme stopped last year, and in 2022 further support is due to be withdrawn. In April, the 12.5% reduced rate of VAT for the hospitality and tourism sector will end and there will also be a reduction in hospitality’s business rates discount. The direction of travel is now towards more normal, post covid, tax and spend principles.

Similarly, the volume of Brexit related changes are also likely to gradually recede this year, with the focus switching to dealing with a new normal, post Brexit trading environment. On New Year’s Day the government brought in new rules for moving goods into the UK; now businesses are no longer able to delay making full UK customs declarations (and any associated payments of duty). The grace period for fully complying with Rules of Origin also expired at the end of 2021 and further sanitary and phytosanitary checks are due to be introduced on 1 July 2022.

The good news is the UK is beginning to use its new found status outside of the EU, making progress on new trade deals with a full legal text of the Australia trade deal being published just before Christmas. It is likely that we will see the implementation of both the Australia deal and the agreement with New Zealand in 2022. While the economic impact of these deals is relatively small, it is also possible that 2022 will be the year where we begin to see progress on a deal with India. A substantial trade agreement with India could have a significant impact on UK business – however, negotiations were only launched last week and the process is likely to be a long one.  

Major tax changes being implemented in 2022

Last September the government announced a new Health and Social Care Levy to apply across the UK to fund the NHS and adult social care. The 1.25% Levy will be introduced in April 2022 and charged based on National Insurance Contributions (NIC). At the same time, income tax rates on dividends will also be increased by 1.25%. The two together will create a ring fenced fund for health and social care and are expected to raise £12 billion per annum. From April 2023, the Levy will be formally separated from other NIC charges and will be extended to also cover working employees over the state retirement age.  The implementation of this charge significantly contributes to the higher tax burden faced by both businesses and individuals.

In December 2021, G20/OECD Inclusive Framework released the model rules for the agreed global minimum tax (under the ‘Pillar Two’ project). The aim of the model rules is to ensure that large multinational groups pay 15% minimum corporate tax in every country in which they operate. The rules are a complex blend of accounting and tax concepts; the highly technical nature of the model rules is illustrated by the 20 pages of definitions that under pin it. Further details are still to follow, including a detailed commentary and a framework for implementation, both due in early 2022.  Domestic implementation by countries is due from 2023, with the rules intended to take effect in the UK from 1 April 2023.

There are new taxes coming into force in 2022 one of which is the Residential Property Developers Tax, which will be introduced at the rate of 4%, as part of the government’s building safety package. RPDT will apply to the profits of UK and non-UK companies or corporate groups undertaking RPD activities in the UK, above an annual group allowance of £25 million. Exemptions will be available for certain types of accommodation and activities. The tax will be included in the corporation tax returns of those companies liable for the new tax. RPDT will be in effect from 1 April 2022.

Green taxes and policies will be a particular focus of 2022, starting with the new Plastic Packaging Tax that takes effect from 1 April, as well as new requirements for mandatory climate-related disclosures for large businesses (500+ employees, and £500 million in revenue). During 2022 the grants for electric cars are set to be reduced from 2.5k to 1.5K and the charging point installation grant is also set to be restricted for some homes.

Tax administration changes

HMRC’s work to modernise and digitise the tax system will continue, with progress towards the introduction of Making Tax Digital for Income Tax and for Corporation Tax in coming years.  There are also changes coming this year in the reporting deadlines for Trusts. For Larger businesses, the government has announced action to improve tax administration, in order to make the UK a more attractive place to do business. In another administrative change large business will also have to notify HMRC of Uncertain Tax positions from 1 April.

We expect to hear outcomes of consultations seeking to improve the UK’s competitiveness, including on Redomiciliation, as well as a number of new consultations on other proposed changes to the tax system, including:

• Reforms to Capital Gains Tax
• Online Sales Tax
• R&D reliefs
• Registration for Self-Assessment

Policy transition

The net effect of these changes is to see a year where policy switches from one of managing the great national issues of the day in Covid and Brexit, to tackling more long-term issues like social care, the environment and modernising international tax rules. The speed of domestic policy making is likely to slow from the incredible pace that was set from 2019 to 2021. But while the speed of policy making is likely to slow, the scale and complexity of the new challenges facing business is unlikely to diminish, especially in the sphere of international tax. To stay up to date with all of our insights on these challenges click here.

Tax changes to come – at a glance