The Start of the 2021-22 Tax Year – What do we need to know?
The 2021-22 tax year is upon us having started on 6 April 2021, what are the major changes, what do we need to know?
The personal tax allowance has increased from £12,500 in 2020-21 to £12,570 in 2021/2022 but it will remain frozen until April 2026 together with the inheritance tax thresholds, pension’s lifetime allowance and capital gains tax annual exempt amounts.
The Income tax and National Insurance thresholds are to rise in 2021-22, but will remain frozen until 2026, in accordance with the 3 March 2021 Budget speech. Recent addition to 2021/22 tax year is that National Living Wage is extended to 23 and 24 year olds for the first time. The previous age of eligibility was 25. This will come down again to 21 by 2024.
The off-payroll, IR35 rules have now been implemented to the private sector. There are process changes in how medium and large businesses are to handle tax affairs of contractors who work for them. As of 6April 2021, medium and large businesses must determine if the IR35 apply to contractors they hire. If so they are required to pay a Deemed Employment Payment.
VAT rates will not change, exemptions however apply to coronavirus relief measures. The VAT threshold will not change from £85,000 it's currently set at. This will remain until April 1 2024 as the government says.
Coronavirus tax measures for 2021/22. The hospitality sector VAT rate which was reduced to 5% in July 2020 has been extended to 30 September 2021. Subsequently a new 12.5% rate will be applied until 31 March 2022. The 20% rate will resume from 1 April 2022. Flat rate VAT users in the hospitality sector also benefit further from these changes. This includes catering services, hotel and accommodation and pubs.
There's no increase in corporation tax for the 2021/2022 tax year, this also applies to the 2022/23 tax year. There are major changes in April 2023, when corporation tax will rise to 25% on profits over what will then be referred to as an Upper Profits Threshold of £250,000.
Businesses with profits of £50,000 or less, will continue to be taxed at 19%. A tapered rate will also be introduced for profits above £50,000, so that only businesses with profits of £250,000 or greater will be taxed at the full 25% rate.
Additional capital allowances were announced by way of a new super-deduction (130%) and 50% first year allowances to encourage capital spend by companies over the next two years. Companies can claim a super-deduction by writing off 130% of qualifying expenditure on new/unused main rate pool assets from 1 April 2021 for two years. Please note these new allowances only apply to companies who pay corporation tax. Individuals, partnerships and LLPs cannot benefit from it.
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