While running your own business as a freelancer you can easily miss news and government policies that could impact your financial well-being. The Freelance Informer outlines just a few things that every freelancer should prepare for in 2022.
CEST casualties and double taxation
With a spree of reports over 2021 that public sector bodies, including the Ministry of Justice, HM Courts and Tribunal Service, Defra, the Department of Work and Pensions and the Home Office have been hit with IR35-related tax bills tallying up in excess of £150m, contractors and freelancers must be vigilant that they are not victims to double taxation or incorrectly assessed by the CEST tool, their recruitment agency, umbrella company or end-client.
HMRC has stated that the MoJ was liable for breaking off-payroll regulations and that it alone owed £72.1m to HMRC. Moreover, in its own annual reports and accounts, Defra was found by HMRC to owe £48m in liabilities for giving false IR35 determinations.
Andy Chamberlain, Director of Policy at IPSE, has voiced his cause for concern over these developments: “The revelations that these huge tax bills are owed prompt a further question: has tax already been paid on these engagements? If it has, then HMRC is in danger of collecting too much tax, which is against its own principles. IPSE is calling for an offset mechanism to be introduced to ensure that double taxation cannot incur.”
Related articles:
IR35: Taxpayers could pay multi-million Government tax bills thanks to CEST tool casualties – Freelance Informer
Off-payroll Legislative “side effects” are piling up – Freelance Informer
Contractors expect more IR35 costs to come, Charity sector could be hardest hit – Freelance Informer
IR35: it’s driven 35% of contractors out of self-employment – Freelance Informer
Higher taxes
2022 will be a year of higher taxes for limited company freelancers, contractors and sole traders. The government has announced a 1.25% Health and Social Care levy based on National Insurance contributions to tackle the social care crisis and a subsequent dividend tax from April 2022.
The rates of Income Tax applicable to dividend income will rise by 1.25%. The dividend ordinary rate will be set at 8.75%, the dividend upper rate will be set at 33.75% and the dividend additional rate will be set at 39.35%. The dividend trust rate will also increase to 39.35% to remain in line with the dividend additional rate.
The changes will apply UK-wide and will take effect from 6 April 2022.
Seb Maley, CEO of tax consultancy Qdos, called the move at the time of the announcement “another short-sighted attack from the government on the self-employed.”
“The national insurance tax hike will hit employers too, pushing up the costs of hiring workers on the payroll,” said Maley.
“It goes without saying that this could stifle employment growth. With this in mind, businesses that have needlessly forced their contractor workforce inside IR35 or insisted they work PAYE in response to IR35 reform should rethink this decision immediately,” he said.
Related articles:
“Short sighted attack”: Freelancers and small businesses hit with Dividend tax, NI hike & health/social care levy – Freelance Informer
IR35: umbrellas are feeding HMRC’s £3.6bn tax grab – Freelance Informer
SIA, HMRC carry out tax abuse checks on contractors – Freelance Informer
HMRC late payment interest rates to increase – Freelance Informer
Stranded Freelancers caught out by residence test – Freelance Informer
Record-high energy bills
Whether you work from home or rent an office space, your energy bills will more than likely be more expensive in 2022, for some freelancers hundreds of pounds more expensive. That is why it may pay to lock in a fixed rate now with a supplier that may supply a mix of traditional and renewable energy sources to balance out the rise in natural gas prices.
Analysts, for example, have already warned that Britain’s energy price cap is likely to rise by more than £700 to £2,000 a year per household when it is next adjusted by the regulator Ofgem in April, The Financial Times reported. Yet some suppliers are suggesting fixed rates, based on previous annual usage, which could equate to bills as high as £3000 per year.
Therefore, as a contractor that has been asked to work from home by an end client for any reason, you may be able to claim tax relief for additional household costs either for all or part of the week. This includes if you must work from home because of coronavirus (COVID-19). However, you cannot claim tax relief if you choose to work from home.
You may be able to claim tax relief for:
- gas and electricity
- metered water
- business phone calls, including dial-up internet access
You cannot claim for the whole bill, just the part that relates to your work.
You can either claim tax relief on:
- £6 a week from 6 April 2020 (for previous tax years the rate is £4 a week) – you will not need to keep evidence of your extra costs
- the exact amount of extra costs you’ve incurred above the weekly amount – you’ll need evidence such as receipts, bills or contracts
You’ll get tax relief based on the rate at which you pay tax. For example, if you pay the 20% basic rate of tax and claim tax relief on £6 a week you would get £1.20 per week in tax relief (20% of £6).
Related articles:
Heat your home office for less – Freelance Informer
Cost of living is going up: negotiate everything
Freelancers are urged to negotiate better deals on everything from day rates to energy bills – before tax and more interest rate hikes kick in.
What freelancers should negotiate now:
- Mortgage rates and whether it will pay off staying or switching to a new provider
- Credit cards and loans – how much could you save with a balance transfer deal?
- Your day rate or project fee – are you valuing your time correctly? Are your clients?
- Energy rates – could going green save you money and convenience?
“You may not feel comfortable with doubling your rates (though I know business coaches who would give the same advice) but increasing your prices can be a sound principle,” says freelance copywriter and author Sarah Townsend.
“By charging more, you’re putting a higher value on your time,” says Townsend.
This move, even if it means putting up your rates just 50%, could mean more time for yourself and your family, but also more dedication to the clients that value your time and what you produce. Some clients may not value your time and efforts or they simply don’t have the budget. You have to make the decision if this is the type of client you really want to do business with long term or just ad hoc when it suits you. That’s the beauty of freelancing, you can pitch at any time.
Related articles:
Why freelancers should negotiate everything right now – Freelance Informer
IR35 contributed to freelancers’ 10% drop in day rates – Freelance Informer
Pension poverty: it’s time to prioritise your pension
The proportion of working-age self-employed saving in a private pension has declined dramatically over the last two decades, from 48% in 1998 to just 16% by 2018. This suggests there are currently over 3.5 million working-age self-employed who are not saving in a private pension, The Institute for Fiscal Studies has revealed.
The cost of living is going up decade by decade, so £10,000 now will not be worth as much by the time you retire. Therefore, the sooner you start saving for your pension the better. But as freelancers, we can often let that ball drop. That is why a Midlife Pension Review with an independent financial adviser or a free advice service, such as Money Helper, could give you some impartial and independent guidance to manage your pension plan options and retirement goals.
If you have your own limited company, you can use savings towards setting up and contributing to a SIPP through your own company. If you would like to set up a SIPP it may pay to get some professional advice from a tax consultant or accountant if you are not 100% sure of how to do it or how to get the most tax efficiency out of your pension contributions for you or anyone you hire now or in the future.