Our mission is to help businesses like yours thrive, and we’ve created this post to help you understand the most important stories and developments of the week affecting you and your work.

National Insurance Contributions and dividend tax are going up

In short

The government has announced a 1.25% increase in both National Insurance Contributions (NICs) and the tax paid on dividends. The increases affect both employees and the self-employed.

Why does this matter?

  • From April 2022, self-employed workers will pay an additional 1.25% in Class 4 NICs; employed workers will see their Class 1 NIC bill increase by the same amount. Voluntary contributions (Class 2 self-employed and Class 3) are unaffected.
  • The tax on dividends will also increase by the same amount. Many self-employed people run their businesses as limited companies and pay themselves in dividends for the purposes of tax mitigation. 
  • The government insists that taxes must rise in order to pay for the increased costs of social care and to help cover the impact of the pandemic, despite the announcement breaking an explicit manifesto promise.

What do I need to do?

  • Be prepared for a higher tax bill, whether you are a sole trader or the director of a limited company.
  • The main rate of self-employed Class 4 NICs will hit 10.25% for the 2022/23 tax year, while the higher rate will reach 3.25%.
  • For dividends, basic rate taxpayers will see the tax rise to 8.75%; higher rate taxpayers will pay 33.75%; and additional rate taxpayers will pay 39.35%.
  • To get a running tax estimate based on your real earnings and outgoings, sign up to the Countingup app free. You can find out more here.

Thousands of small businesses can’t repay their COVID loans

In short

Thousands of small firms in the UK cannot make the repayments on government loans received during the pandemic, according to research from YouGov and LawBites.

Why does this matter?

  • Millions of UK businesses received support from the government during the height of the pandemic, including many who took out loans under the Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS). The money was intended to help firms stay afloat while the country was locked down.
  • The loans included a 12-month grace period during which no repayments were made. But that period has now ended, and thousands of firms and sole traders appear to be unable to fulfil their payment plan.
  • The YouGov survey found that one tenth of respondents cannot make their repayments as a result of cash flow and supply chain problems. YouGov says that could amount to as many as 354,000 SMEs defaulting.

What do I need to do?

  • If you received a loan under the BBLS, your repayments will have begun. You will have been offered the option to make repayments according to the Pay As You Grow scheme, which is designed to help businesses spread the cost of their loans as they begin to recover.
  • If you can’t make your repayments, it’s vital that you take action now.

Trades benefit from pandemic home improvement bounce

In short

Small businesses in construction and trades have enjoyed a surprise increase in sales attributed to changing consumer behaviour during the UK’s repeated COVID lockdowns.

  • Figures from City AM and software firm Powered Now suggest that the average value of invoices raised by construction SMEs is 6% higher in 2021 than during the previous year.

Why does this matter?

  • Construction has remained surprisingly buoyant throughout the pandemic, with householders spurred on to complete home improvement projects in lockdown.
  • The average value of an invoice in the trades reached £1,233 in August, according to the City AM and Powered Now research, making it the second-highest month for revenue in 2021.
  • Importantly, the trend appears to have continued past ‘Freedom Day’, when most COVID restrictions were lifted, suggesting that tradespeople and construction SMEs may continue to benefit.

What do I need to do?

  • Small businesses and sole traders in the construction sector should be prepared for further uncertainty over the coming months. It was widely reported this week that the UK government has not ruled out an additional ‘firebreak’ lockdown in October if case numbers continue to rise.
  • But the smallest firms can continue to capitalise on the uptick in consumer demand for construction and trade services. Make sure you have your invoicing and payment collection processes up to speed in order to make the most of the trend.

Further reading

Enjoyed this week’s update? Here are some pieces you may find valuable:

Time management for entrepreneurs

Marketing strategies for small businesses 

How to write a business plan