There are quite a few changes in the new 2021-22 tax year that are likely to impact your business. We’ve listed the key elements here, so you can skim through and just dig into the details of those that are most relevant to you.
The start of the new tax year is always a good time to catch up on any changes so you can review your tax and money issues for the year ahead,
We’ve gone in depth on the changes to the tax free Personal Allowance and tax thresholds here. The main takeaway being that they’re frozen until the 2026-27 tax year and the possible consequences of this for individual taxpayers, businesses and the Treasury.
So we’re going to focus on minimum wage, living wage and National Insurance Contributions.
Increases to the Living Wage and Minimum Wage are not a surprise, as they were announced in November 2020. The Low Pay Commission advised these increases in their report.
As a result, the hourly rates that you’re legally obliged to pay employees is now:
- Under 18s: £4.62
- 18 – 20 year olds: £6.56
- 21 – 22 year olds: £8.36
- 23+ – £8.91, called the National Living Wage
There’s also an Apprentice rate of £4.30 per hour, for people either under 19 years old or in their first year of an apprenticeship.
National Insurance Contributions
The 2021-22 National Insurance Contributions (NICs) for Class 1 (Primary Threshold/Lower Profits Limit) goes up to £9,568.
These are not frozen until 2026 but may go up at “future fiscal events” – in other words, in future Budgets.
The Upper Earnings Limit/Upper Profits Limit are frozen at £50,270 until 2026, just like the corresponding Higher Rate Tax threshold.
Intermediaries Legislation IR35 regulations, to you and me
If you use contractors as part of your workforce, you need to make sure you get your head round the changes to IR35 regulations. And it’s not clear cut. It’s even got a load of different names: IR35, ‘off payroll working’, ‘intermediaries legislation’.
The whole idea behind the legislation is to both prevent individuals missing out on workplace rights and to stop tax avoidance. HMRC call individuals ‘deemed employees’ or ‘disguised employees’ (they’re working as a contractor), but their work situation is that of a full-time employee.
The employer hires these individuals through a third party agency, usually a personal services company (PSC). This is an issue because the employer pays the agency, who then pays the employee. Missing out the crucial step of paying employer’s NICs.
The major change in this new tax year is that the responsibility for identifying if IR35 applies to your contractors is now on you (as a large or medium sized company). And if they are, you’ll have to pay a Deemed Employment Payment to ensure an equal amount of tax is being paid to that of your employed workers.
Capital Allowances for business
The Chancellor was very keen to announce the new super deduction capital allowance, which started in April 2021 and is available until 31st March 2023.
The super-deduction means that you can buy any eligible plant or machinery and then claim back 130% of that cost. A massive indication that the government is supporting investment in new assets in order to boost growth across the economy.
There’s also an extra 50% First Year Allowance that includes life long assets.
Corporation Tax 2021/2022
The much talked about Corporation Tax increase has caused concern for lots of businesses. It’s not happening in 2021-22, and probably not the following year.
But the government have planned to make changes to Corporation Tax in April 2023. The proposal indicates that there will different rates for different sizes of business:
- Small Profits Rate of 19%: applies to businesses with profits up to £50,000
- Upper Profits Rate of 25%: applies to businesses over the new ‘Upper Profits Threshold’ of £250,000
- Businesses with profits in between £50,000 and £250,000 will be charged corporation tax at a tiered rate, corresponding to the size of their profits. The precise details of this haven’t been published by HMRC yet.
VAT rates and threshold for 2021-22 remain the same. The £85,000 VAT threshold is frozen until 2024=25 tax year.
If you’re in the hospitality industry, that is being supported by COVID-19 VAT deductions, your VAT will be charged at:
- 5% VAT until 30th September 2021
- 5% until 31st March 2022
- 20% from 1st April 2022
Flat rate VAT:
- Pubs: 1% until end September 2021, 4% until end March 2022
- Catering Services: 4.5% until 30th September 2021, 8.5% until March 31st 2022
- Hotel and accommodation: 0% until September 30th 2021, 5.5% until March 31st 2022
To further support businesses in their COVID-19 recovery the Treasury has continued the VAT Deferral Scheme. This allows you to pay your VAT bill in smaller instalments.
2021/2022 tax year other relevant information
There are a couple of other points that may be relevant to your business:
- Capital Gains tax annual exempt amounts, Pension Lifetime allowance and Inheritance Tax thresholds are not increasing in this new 2021-22 tax year and they’re frozen until 2026.
- There aren’t any new business taxes because of Brexit regulations. The import VAT changes started on 1st January 2021 and practically become postponed VAT accounting – but you’re probably already aware of this.
As ever with tax, the wisest business owners get on top of their tax position quickly. No waiting until deadlines or chaotic paperwork. Think through which of our new tax year changes affect your business and make any necessary calculations or alterations now.
It can be tricky and we’re here to help. No one said you have to figure it out yourself. But you save time, reduce stress and secure business success by getting things in place well ahead of time.
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