New Tax Year Resolutions for Individuals and SMEs

Times are changing and challenging at the same time. Coronavirus has seen individuals and business owners face more challenges, especially those who lost income. This directly affects the tax year as it has significant concerns. This article looks at how individuals and Small and Medium enterprise businesses can stay afloat during these unprecedented times.

Changes in The 2021/22 Tax Year

The new tax year started on 6 April 2021, and with it came major changes. Below are a few fundamental changes you need to understand.

1. VAT Rates

While VAT rates will remain the same, Covid-19 relief measures will, however, be exempted. The VAT threshold for businesses will remain at £85,000 until 1 April 2024, as previously planned by the government.

2. IR35 Changes      

Medium and large businesses will face a significant change in how they handle tax issues for their employees on contract. Starting 6 April 2021, the businesses mentioned above must decide if the IR35 affects their contractors. If it applies to them, they will have to pay a Deemed Employment Payment.

3. Coronavirus Tax Measures

In July 2020, the VAT rate for the hospitality industry was reduced to 5%. This is expected to run until 30 September 2021. A new rate of 12.5% will be in effect until 31 March 2022. The initial 20% rate will resume in April 2022.

More changes for people in the hospitality sector include:

Catering services: 4.5% extended to 30 September 2021, with a subsequent 8.5% until the end of March 2022.

Pubs: 1% rate until the end of September 2021 and 4% until the end of March 2022.

Hotel and Accommodation: 0% until September 2021, and 5.5% thereafter upto March 31, 2022.

4. Wage and Salary Deductions

Personal tax, National Insurance, and Minimum wage allowances have seen a rise for 2021. The National Living Wage has been added into the 2021/22 tax year and is now applicable to 23 and 24-year-olds.

5. Tax changes post Brexit

The Brexit doesn't affect any business tax.

6. Capital allowance and Corporation Tax

The corporation tax for the 2021/22 tax year will remain constant as the previous year, which is expected to last until the 2022/23 tax year.

In April 2023, the corporation tax is expected to rise to 25% on Upper Profit Thresholds of £250,000.

7. Additional Tax Changes                                                                

Further tax changes will face a 'five-year freeze.' The tax band changes put in place for 2021/22 will run to 2025/26. Taxable income for the personal allowance will rise to £12,570 for the new tax year, which is equivalent to £1,048 per month.

New Tax Year Resolutions

The horrible 2020 is gone, and so you need to prepare for 2021. There's new VAT, Budgets, and Brexit in addition to the usual compliance challenges. Here is how to survive amidst it all.

• Claim Deductions if You Work From Home

Both employers and employees can benefit from this plan. If you're an employee working from home, you are eligible to claim a tax deduction of £26 per month (basically £6 per week). This covers the cost of using your home as a workplace, and you don't have to keep records of any expenditure.

For the employer, they can pay the worker allowance tax and National Insurance Contribution- free.

All payments above the fixed allowance need to be taxed unless it covers specific expenses according to employment rules.

• Self-assessment Tax

31 January 2021 marked the first 2020/21 self-assessment payment, which applied to the 2019/20 tax liability and income. If the 2020/21 liability drops, you can claim to reduce the payments on account, which will reduce July's payment and repayment of the excess on account done in January.

• Check on Your PAYE

PAYE codes could earn you several adjustments for deductions, unpaid tax, and other income, depending on figures from the previous years. If deductions are due or investment income drops, the 2021/22 code may not be correct for the same.

Ensure your codes are correct and it covers all claimable deductions.

• Residential Property Acquisitions During SDLT Holidays

If you apply to acquire a residential property during the SDLT holidays, you will get a temporary reduction. This applies to England, Northern Ireland, and Wales, and it should be completed before 30 September 2021.

For purchases that start before 31 July and completes before 30 September, a limited relief will apply since it is just after the "initial temporary relief period."

Buyers should be aware that the buying process significantly takes longer to process and complete, with a 3% surcharge fee. This fee isn't part of the temporary relief but can be reclaimed when you buy a new residence within three years.

The land transaction tax (LTT) for people in Wales has been extended to 30 June.

Scotland's land and building transaction tax (LBTT) holiday ended on 30 April with no extension.

• Review Your Company Shares for Value Claims

When the value of shares becomes negligible, you're likely to get losses on CGT.

The company could claim income tax relief for the losses if trading on an eligible Enterprise Investment Scheme (EIS) and shareholders subscribed for the shares. The shareholders don't have to claim EIS, and they can claim the reliefs for an earlier year if the company proves its value became negligible in the preceding two years.

If you need to sell shares to meet liabilities, you can crystallise losses against gains on sold shares.

The tip here is to ensure you identify and report all capital losses in the tax year 2020/21. If they are traded for losses against gains for the new tax year, they will be claimable in future gains.

The new tax changes will run to mid-July 2021, but there might be an Autumn Budget and a couple of other tax surprises. 2021 will be an exciting year, so brace yourself if you think 2020 was terrible.

If you have any opinions or concerns about tax return submissions, feel free to contact us.