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New tax year: Changes from April 2021

Every April, the UK enters a new tax year, and most of us will be happy to put 2020 (finally) behind us. Over the coming weeks or months, you’ll likely start preparing your financial documents to submit your Self Assessment or Company Tax Return. There are also some upcoming changes that you should be aware of.

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Unlike previous years, the coronavirus pandemic has delayed many of the scheduled changes that were supposed to take place.

This article looks ahead to the new tax year, including tax breaks, VAT changes, new regulations, and wage changes being introduced.

Corporation tax

Let’s begin with some good news! For the 2021/2022 tax year, there will be no increase in corporation tax. However, in 2023, this is due to rise from 19% to 25% for businesses whose profits exceed £50,000. For small businesses, the 19% rate will continue to be in place.

The super-deduction tax break

Continuing with the good news, the Government announced the super-deduction tax break which will allow companies to claim 130% of expenditure for business equipment against their taxable profits.

This generous tax break applies to any new purchases of eligible plant and machinery made between April 1st 2021 and March 31st 2023. This includes purchases such as computers, desks, tools, solar panels, and tractors.

Any business that pays corporation tax can use the super-deduction. Compared to the previous method of allowable expenses, the super-deduction can provide up to 19% additional tax savings.

VAT rates for 2021/2022

The VAT rates and VAT threshold will not be changing this year. The Government stated that the current threshold to register for VAT will continue to be £85,000 until April 2024 at the earliest.

IR35 changes for contractors

The IR35 rules for off-payroll workers was scheduled to change in April 2020. However, due to the pandemic, this will now be introduced in April 2021.

Most medium or large companies (50+ employees / £10.2m annual turnover) that hire contractors will be affected. This change shifts the responsibility from the contractor to the company that hires them to ensure that they are compliant with IR35.

IR35 was introduced as a measure to decrease tax fraud and mistakes. The change in April will help to ensure that ‘disguised employees’ are paying the correct amount of income tax and National Insurance.

You can find more information about IR35 on our blog: “IR35 changes for UK contractors”.

Minimum and living wage changes

As usual, the new tax year comes with an increase in the National Minimum Wage and National Living Wage.

The changes are as follows:

  • National Living Wage (Aged 23+): £8.91
  • National Minimum Wage (Aged 21-22): £8.36
  • National Minimum Wage (Aged 18-20): £6.56
  • National Minimum Wage (under 18): £4.62
  • Apprentice rate: £4.30

This year, they have also decreased the age for the National Living Wage from 25 to 23.

COVID-19 measures for hospitality

Throughout the past year, the Government introduced loans, grants, tax breaks, and other aid for businesses and self-employed workers. Lots of the relief is still available to businesses who incur losses due to the pandemic.

The hospitality sector saw its VAT rate reduced from 20% to 5% in 2020. This was due to end on March 31st 2021, however, it will now be extended until September 30th 2021. From October 2021 to March 2022, the rate will be 12.5%, and from April 2022, it will be back to 20%.

Hospitality businesses that are on the flat rate scheme will also see a similar trend. The exact rates depend on your business category and can be found on the UK Government website.

Summary

It’s been a whirlwind of a year, and the Debitoor team is excited for things to get back to normal!

For the most up-to-date information about changes in the new tax year, you should visit the UK Government website. You will also be able to find information on the different coronavirus relief measures available to your business.

Happy new (tax) year!

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