The tax bands and thresholds for the 21/22 tax year could influence how you choose to pay yourself as an e-commerce entrepreneur. It may be more tax-efficient to pay yourself dividends as a director. We’re also looking at predictions for the 22/23 tax year so you can plan ahead.
The 21/22 tax year has been filled with the confusion and drama of the previous tax year. Between COVID and Brexit, you can be forgiven for not being as on the ball with the current tax bands and thresholds! Don’t worry – we’ll get you up to speed for this tax year and take a look at what experts are predicting for next year.
Tax bands and thresholds 21/22
Tax bands and thresholds can have a major effect on our personal and business finances. If your business is limited, you will need to consider Corporation Tax. If you are VAT registered, a likely scenario if you import or export outside of the UK, you will need to consider the VAT rate in every country you deal with.
Regardless of your e-commerce business’ entity choice, you will need to know the current Income tax and National Insurance rates. And if you are a director, the dividend rate may be a convenient way to optimise your tax situation.
|Basic rate||£12,570 – £50,270||20%|
|Higher rate||£50,000 – £150,000||40%|
2022/23 predictions: With the extent of COVID’s financial ramifications still being ascertained, it’s hard to know how much of the bill taxpayers will bear the brunt of. However, current information is that the basic rate upper threshold will drop to £37,700 and the higher rate dropping to £50,270.
National Insurance is set at a different rate depending on whether you are an employee or self-employed. If you are both, as many e-commerce entrepreneurs are while their businesses are ramping up, your employment will cover your National Insurance contributions provided you are over the threshold. The below figures are purely for self-employment.
|Small profits threshold||£6,515||0%|
|Class 2 NIC||£6,515+||£3.05 per week|
|Class 4 NIC||£9,658 – £50,270||9% of profits|
|Upper profits limit||£50,271+||2% of profits|
Unlike most forms of taxation, most taxpayers will need to pay both Class 2 and Class 4 contributions.
If you are unsure of the correct level of taxes for you to pay due to multiple income streams, please ask an accountant before submitting your annual figures.
2022/23 predictions: The current information is that National Insurance will remain in step with income tax.
Dividends are usually the most efficient way to pay yourself if you are a director of a limited e-commerce company. The rates are far more favourable than personal tax bands.
|Ordinary rate||Amounts over personal allowance up to £37,700||7.5%|
|Higher rate||Amounts over personal allowance of £37,701 to £150,000||32.5%|
|Additional rate||Amounts over personal allowance of £150,001+||38.1%|
2022/23 predictions: It is yet to be announced, but it is likely to remain in step with income tax thresholds and therefore not change.
The 2021/22 Corporation Tax rate has remained unchanged at 19%.
2022/23 predictions: Corporation tax is on the rise and will peak at 25%, although there are some allowances and relief available.
Most e-commerce business owners will need to look at international VAT rates but, in the UK, the standard rate is 20%, with the reduced rate at 5%.
2022/23 predictions: VAT looks stable for the next 12-36 months.
If you need help organising your e-commerce business’ taxes in the most efficient way or are unsure of your international tax liabilities, get in touch with our team of specialists.
The best time to act is now.