Tax season is soon to kick off and everybody needs to get their books in order, because, from the looks of it, things will be more complicated than ever! A range of emerging issues will make taxes a lot more complicated for everybody and slow things down by a significant degree. 2022 is expected to be tough on the finances for investors – so it’s imperative for investors to keep track of all the latest tax changes to avoid any fines or penalties.
Here are some of the key reasons that doing your taxes in 2022 is going to be more complex than ever.
1. Paying Tax on Crypto
Did you know that you are obliged to pay tax on income related to cryptocurrency in the UK? Now, you may not find a legal, financial clause claiming a specific tax on Bitcoin or cryptocurrency, but your crypto is directly subject to either Income Tax or Capital Gains Tax.
The tax that you will be liable to pay depends on the transactions you conduct with your crypto. If you are earning income from your transactions, then you need to pay Income Tax. Equally, if you are making a capital gain, you will be liable to pay Capital Gains tax. There are a lot of legalities and technicalities involved that you will have trouble sorting out, so it’s important to consult with qualified crypto accountants in the UK.
2. Increase in Dividend Tax Rates
Many investors face new challenges this year as they are exposed to rising dividend tax rates. With an increase in National Insurance rates, tax on dividends will also see a steep increase.
However, investors will be taxed on the amount earned above the dividend allowance. Use a dividend tax calculator or trust reliable accountants to ensure you are not caught up in tax fraud.
3. Rise in Scottish Income Tax Threshold
Last year, the Scottish parliament announced that it would raise its income tax threshold in April 2022. There are different rates and thresholds of income tax in Scotland compared to other parts of the UK. If you live in Scotland, be sure to check the newly adjusted tax rates for Scottish taxpayers.
4. Inheritance Tax Reporting
Another tax rule that will be administered from this year forward is the change in inheritance tax reporting. All estates that are categorised as “Expected Estates”, will not require heirs to report the estate’s value as long as inheritance tax is not applicable. However, otherwise inheritance must be paid.
To qualify as “expected estate”, an estate must:
- Be valued below the inheritance tax threshold
- Be worth £650,000 or less - the unused threshold is transferred from a civil partner or spouse, whoever died first
- Have UK assets with a value less than £150,000 and the deceased must have been living outside of the UK permanently when they passed away.
5. DeFi Protocols
DeFi taxes can get very complicated for anybody new to these, as each protocol is different and requires attention. If you are an investor or lender, then HMRC will consider them to be capital gains disposal, even if you will still be controlling a stake.
You can only dismiss this if you were aware of the return when you initially started lending and staking, in which case it is treated as revenue and nothing else. If you are being paid via the DeFi protocol, then it must be regarded as income. Many other factors, such as recurring income, length of the loan, and payment of returns also determine how DeFi is exercised under UK tax law.
6. Capital Gains Tax
It was announced in the Autumn Budget of 2021 that the capital gains tax landscape will change completely for all property owners in 2022. Now taxpayers have a window of 60 days, as opposed to 30 days, to report the gains they earned after selling their property, and pay the tax that they owe.
In practice, this makes things more complex, as anybody who earns a capital gain after selling a second property will be required to submit a residential property return to HMRC. You will also need to pay the applicable tax within 60 days of the gain being made.
7. VAT Rates in 2022
A Value-Added Tax is levied in more than 170 countries across the globe, including all European countries. Currently, the European Union countries with the highest standard VAT rates are Hungary at 27 %, and Croatia, Sweden, and Denmark, all at 25 %. The lowest VAT is levied in Luxembourg at 17%, followed by Malta at 18%, then Romania, Germany, and Cyprus, each at 19%.
Final Words
Most taxpayers are worried about the increasing tax rates in 2022, but as tax bills increase, the complexity of doing your taxes also increases. Make sure that you seek advice from qualified and trained professionals who can help you file your self-assessment tax return for the year and save you from any legal issues.