Posted 5 months ago by Tracy
The 2021-2022 tax year, which began on 6 April, brings with it a number of personal and business tax changes that could impact small businesses. From changes to the personal tax allowance to an increase to tax rates for company vehicles, as well as the various COVID-19-related initiatives recently announced by Chancellor Rishi Sunak, there’s plenty to be aware of to make sure you’re properly prepared for the new tax year.
Here we take a look at 10 key changes that come into force this month.
Firstly, the personal allowance is increasing very slightly for this tax year, from £12,500 to £12,570. The basic tax rate of 20% will then be payable on income between £12,571 and £50,270, before the higher rate of 40% kicks in on income between £50,271 and £150,000. The additional tax rate of 45% on income above £150,000 remains the same.
National Insurance Contributions (NICs) rise in a similar way for 2021-2022, with Class 1 NICs (primary threshold/lower earnings limit) rising to £9,568, up from £9,500. The upper earnings limit/upper secondary threshold rises to £50,270 to match the higher-rate threshold for income tax.
The Dividend Tax Allowance remains at £2,000 for the new tax year. There are also no changes to the dividend tax rates, but the thresholds have also changed in line with the income tax thresholds. This means basic rate taxpayers pay 7.5% on dividends; higher-rate taxpayers pay 32.5%; and additional-rate taxpayers pay 38.1%.
From 6 April the earnings threshold before graduates start to repay a student loan has also increased. Plan 1 loans will rise to £19,895, up from £19,390, while Plan 2 loans will rise to £27,295 (from £26,575). A Plan 4 scheme is being introduced for all new and existing Scottish loans with a threshold of £25,000 – anyone with an existing Scottish loan will be moved to this. If you run a payroll for employees with student loan deductions, you must ensure you have a record of what type of loan they have, so that the correct deductions are made. And, if you’re a director being paid salary and dividends, remember the threshold for repayment is based on your total income.
As of 1 April 2021, the National Living Wage has been extended to 23 and 24-year-olds, having previously only been applicable to those aged 25 and over. Rates continue to vary based on age, but the increases announced in November will now come into force. This means that those under 18 will earn £4.62 an hour, increasing to £6.56 for 18-20-year-olds and £8.36 for 21-22-year-olds. Those aged 23 and over will receive £8.91, while the apprentice rate is now £4.30.
The much-discussed off-payroll working reforms come into effect this month, with all public sector authorities, and medium and large-sized private sector clients now responsible for deciding if IR35 rules apply to any contractors they hire. If it is now determined that a contract is within the scope of IR35, and so the contractor is actually deemed to be an employee for tax purposes, then the client will be responsible for operating PAYE and deducting employee NICs on the fees it pays to the intermediary (excluding VAT). The fee payer must also pay employer NICs and, where applicable, the apprenticeship levy.
The new tax year also brings with it an increase to benefit in kind tax rates for company cars, with those registered after 5 April 2020 seeing their benefit charge rise by one percentage point.
Fully electric cars, which had no tax charge in the 2020-2021 tax year, are now rated at 1% of their list price, increasing to 2% in 2022-2023.
From 6 April 2021, the percentage applied to the list price of the car will increase based on the CO2 emissions published by the Vehicle Certification Agency. HMRC has published a ready reckoner that can be used to calculate company car tax.
The incentive scheme to hire apprentices, which had been scheduled to end on 31 March 2021, has been extended until 30 September 2021. Under the scheme, employers will receive £3,000 for every new employee who starts employment after 1 April 2021 and is enrolled onto an apprenticeship before the cut-off date, whatever their age. This is up from the previous rate of £2,000 for apprentices aged 16 to 24 and £1,500 for those aged 25 and over. Moreover, employer’s NI does not need to be paid for any staff carrying out an apprenticeship up to the age of 25, meaning there are more employer savings to be made. The new cash incentives will be paid directly by the government to employers.
The new tax year also sees the introduction of the super deduction, as announced in March. This allows companies to claim 130% capital allowances on qualifying plant and machinery investments for expenditure incurred from 1 April 2021 until the end of March 2023. Assets qualifying for the super deduction include fire alarm and security systems, computer equipment and servers, tractors, lorries and vans, ladders, drills and cranes, office desks and furniture, refrigeration units and electric vehicle charging points. These allowances only apply to companies that pay corporation tax; individuals, partnerships and LLPs cannot benefit.
From 6 April, UK government-backed loans from £25,001 up to £10 million are also available to businesses that continue to need support in the wake of the COVID-19 pandemic. Businesses of all sizes can apply to the Recovery Loan Scheme (RLS) if they continue to be negatively impacted by the situation. The finance can be used for any legitimate business purpose, including managing cashflow, investment and growth. Businesses are required to meet the costs of interest payments and any fees associated with the RLS facility, however the annual effective rate of interest, upfront fee and other fees cannot be more than 14.99%.
The scheme runs until 31 December and is available through a number of accredited lenders.