The-top-tax-challenges-of-2022 - (C) image by Menzies LLPMost business owners will know that the tax landscape is ever-evolving. With new targeted taxes on the horizon, you need to be able to navigate the top tax challenges of 2022.

1. Navigating tax in an uncertain landscape

Business owners need to be aware of previous tax changes already announced. They must also consider how new targeted taxes could impact their business and keep an eye out for areas with planned reforms whilst also ensuring any available reliefs are maximised.

Planning for Corporation Tax increases seems straightforward enough profits could be eroded quickly if these are not factored into commercial decisions, such as pricing, ahead of time.

2. Tax and global mobility

The pandemic has proved that employees can operate successfully from another country and more people than ever before are working or wishing to work remotely from overseas. Employers now have access to a larger talent pool while removing the need to bring international workers into the UK and taking on the costs involved.

Employers need to be aware that failing to comply with local tax regulations could incur hefty penalties, particularly if allowed to accumulate.  There are also Brexit-related changes to areas such as immigration and social security to take account of.

Tax rules and exemptions may differ in different jurisdictions. As well as ensuring compliance it’s important that employers make the most of available opportunities to optimise their tax position. For example, could Temporary Workplace Relief be claimed if bringing a worker into the UK for less than 24 months? Some UK workers sent abroad temporarily could be eligible to remain under the UK social security regime. Consider whether bilateral social security agreements exist between the UK and the other country or whether the other country is within the EU and EEA.

Remote workers represent a relatively new category of employee, and the following local rules need to remain under constant review:

  • Tax
  • Social security
  • Employment rights
  • Corporation tax
  • VAT

Businesses should take action now to manage their remote population, understand their current obligations and watch out for changes in the future.

3. Corporate tax increases and cash management

Upcoming changes to the rules around Corporation Tax, from April 2023, will increase its complexity. Not only will they increase the likelihood of businesses paying a higher rate of corporate tax, but some may also need to make earlier payments to HMRC. These changes could make it more difficult for businesses to plan ahead to mitigate any negative cash flow impacts.

The planned changes to corporate taxes will involve the introduction of two rates:

  • 19% for companies with annual taxable profits of < £50,000
  • 25% for companies with annual taxable profits of > £250,000
  • A marginal rate of tax will apply for annual taxable profits between £50,000 and £250,000

In addition to the above the old associated companies rules are being brought back which could also impact the tax rate and timing of tax payments depending on whether a company starts to fall into the quarterly instalment regime.  This may make it more difficult to calculate which of these two bands to fall into and the deadlines for tax payments to HMRC.

Optimising Tax Position

Organisations should review their business structures to help optimise their tax position. Planning the timing of their expenditure could help maximise tax reliefs, such as the capital allowances super-deduction.

4. The future is green

Most businesses know that improving their sustainability credentials is crucial to their future success.

The future landscape for a climate change tax is currently uncertain. Businesses can take advantage of the super-deduction on capital allowances until end of March 2023. Further grants and reliefs will be required to incentivise green investments in the longer term.

For example, decision-makers should be aware of current and future tax incentives aimed at making it more tax-efficient for employers and employees to reduce their ‘Scope 3’ carbon emissions.

Plastic Packaging Tax

Introduced in April 2022, the plastic packaging tax impacts businesses across various industries. It applies at a rate of £200 per metric tonne for UK businesses that manufacture or import 10 tonnes of plastic packaging per year. It applies to packaging that contains more plastic by weight than any other single material. Businesses should consider the impact of this and other new green taxes could have on their supply chain.

5. R&D tax relief

Many businesses do not claim research and development (R&D) tax relief, despite the fact that their problem-solving activities often meet HMRC’s eligibility requirements.

A variety of businesses are developing products and processes that are advancing in technology or science. Research and development (R&D) is not just defined to ‘scientific’ activity. Therefore, some organisations don’t realise that they could be eligible for R&D tax credits  Reforms are also due to take place from April 2023 to incentivise UK R&D activity and make the regime even more attractive.

Maintaining a healthy cashflow should remain a priority for businesses. Businesses not currently claiming R&D relief should seek advice to see if this is an available option.

6. Cross-border payments – tax considerations

Cross border transactions throw up several tax issues to consider, dependent upon the nature of the transactions. For example, for services delivered on the ground in another country, local corporate income tax or local payroll taxes may be due. Further indirect taxes should also be considered, such as

  • Local sales taxes
  • Customs duties
  • VAT
  • State and local taxes

Transfer Pricing

Transfer pricing is another key aspect of taxation related to cross-border payments. This affects groups that are transacting between related companies in different countries.

The UK Government has consulted on plans to introduce transfer pricing reporting for corporate tax returns. It will make it easier for HMRC to review transactions and assess whether sufficient tax is paid.

For all companies trading internationally, with third parties or other group companies, it makes sense to take advice about the tax implications of cross-border payments preferably before arrangements are set in stone.

7. Make sure you are protected

It is now more important than ever that business owners have a plan for their future.

Planning for the event of retirement and/or death is vital and shouldn’t be left to chance. What would happen to the business under these circumstances, would the business close, or would someone take over? Could this trigger inheritance tax (IHT) or a capital gains tax (CGT) liability? Not properly planning ahead increases the likelihood of higher tax liability.

The best way to protect your wealth, is to have a plan and keep it under review. Even if capital tax increases fail to materialise in the short term, they are unlikely to reduce, so assuming some increase in tax liabilities over time remains a sensible approach.

What Next?

We are living in uncertain times, but businesses and their owners, can’t afford to do nothing.

It has never been more important to have a trusted team of tax advisers on your side, helping you to make the right decisions about how to structure your financial interests or ease pressure on cashflow in the year ahead.

If you have any questions regarding these tax challenges, contact Lucy Mangan.

Menzies LogoMenzies is a top 25 leading firm of accountants, finance and business advisors that operate out of a network of offices across Surrey, Hampshire and London, providing our clients with easy access and local knowledge. Described as the ‘best performing firm outside of the top 10’ by Accountancy Magazine, Menzies has over 400 employees and an annual turnover of more than £40m.


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