Tax changes effective from April 2021
Wages and salary changes for 2021/22
Minimum and living wage amounts
There are increases in the minimum wages you must pay to employees as of April 2021. New to the 2021/22 tax year is that the National Living Wage is extended to 23 and 24 year-olds for the first time, having previously been limited to those aged 25 and older.
The minimum and living wage details are as follows:
. National Living Wage for people aged 23 and over: £8.91
. National Minimum Wage for people aged 21 to 22: £8.36
. National Minimum Wage for people aged 18 to 20: £6.56
. National Minimum Wage for people under 18: £4.62
. Apprentice rate for those aged under 19, or those over this age but in the first year of their apprenticeship: £4.30
Income tax Personal allowance
The income tax bands for the 2021/22 tax year are as follows:
. Personal allowance: Up to £12,570 (0% tax rate)
. Basic rate: £12,571 to £50,270 (20% tax rate)
. Higher rate: £50,271 to £150,000 (40% tax rate)
. Additional rate: More than £150,000 (45% tax rate)
Important Taxes Allowances in 2021/22
Although not directly related to business, it’s worth noting that the following personal tax allowances/thresholds do not increase in 2021/22, but are also frozen until April 2026:
.Inheritance tax thresholds Nil Rate Band £325,000
.Pensions lifetime allowance £40,000
.Capital gains tax annual exempt amounts £12,300
Let’s start with the good news. There’s no increase in corporation tax for the 2021/2022 tax year, and there will almost certainly not be one in the 2022/23 tax year. But that all changes in April 2023, when corporation tax rises to 25% on profits over what will then be referred to as an Upper Profits Threshold of £250,000.
This is the first rise in corporation tax since 1974. It won’t be quite so bad if your business is smaller, because there’s also now a lower threshold for corporation tax, with its own rate. Known as the Small Profits Rate, this will apply to profits under £50,000 and the rate will remain at 19% as of April 2023.
But for those with profits between £50,000 and £250,000, there will be a new tiered corporation tax rate for April 2023 onwards – however, the government has not yet revealed details of this.
Capital allowances – Super Deduction
More good news is found in a new super-deduction capital allowance that can be used between 1 April 2021 until 31 March 2023.
This is set at 130%, and it means companies investing in qualifying new plant and machinery assets can claim back the cost as a first-year capital allowance, plus 30% on top of that. As the media has pointed out, this is like the government paying you to buy assets.
The goal is to encourage firms to invest and therefore grow. There’s also a further capital allowance measure that can be used by investing companies, who benefit from a 50% first-year allowance for qualifying special rate (including long life) assets.
VAT rates for 2021/22
The VAT rates don’t change as of April 2021, with the exception of coronavirus relief measures discussed below aimed at hospitality sectors. Nor does the VAT threshold change from £85,000 it’s currently set at. In fact, the government announced in the 2021 Budget that the threshold is now locked until 1 April 2024.
Coronavirus tax measures for 2021/22
The first is the reduced VAT rate of 5% for businesses in the hospitality sector. This was launched in July 2020 and was due to end on 31 March 2021, but is once again extended – this time until 30 September 2021. Subsequent to that date, a new 12.5% rate will be applied until 31 March 2022. The 20% rate will resume from 1 April 2022.
The big change is that as of 6 April 2021, medium and large businesses must determine if the IR35 applies to contractors they hire. If so, they are required to pay a Deemed Employment Payment – essentially, ensuring the contractor pays the same amount of tax compared to a regular employee.
Stamp Duty taxes
A 2% stamp duty land tax surcharge for purchases of residential property by non-UK residents comes into force on 1 April 2021.