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Personal And Business Tax Changes From April 6 2021

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The 2021/22 tax year begins on 6 April 2021. The government has implemented limited measures this year although it will start to claw back the monies it has put into coronavirus relief after 2021/22. In this article from Caroline Streatfield Bookkeeping, based in Eastbourne, we look at the key changes in personal tax thresholds and allowances, National Minimum and Living Wage amounts, National Insurance contributions, Corporation tax and VAT.

Changes at a glance

  • Individual personal allowances frozen until 2026
  • Corporation tax to increase to 25% in 2023
  • VAT relief remains at 12.5% and returns to 20% in 2022 (hospitality sector)
  • Increases to National Minimum Wage
  • National Living Wage extended to 23-24 year olds
  • Rise in the threshold for National Insurance contributions (NICs)

 Personal tax thresholds and allowances

Your personal tax allowance is the amount you can earn before paying any income tax. After this year, these thresholds will be frozen until 2026.

2020/21 2021/22
Basic rate tax 20% on income between £12,501 and £50,000 20% on income between £12,571 and £50,270
Higher rate tax 40% on income between £50,001 and £150,000 40% on income between £50,271 and £150,000
Additional rate tax 45% on income above £150,000 45% on income above £150,000

Minimum Wage and Living Wage amounts

There are increases in Minimum Wage rates. The National Living Wage is extended to 23-24 year olds for the first time having previously been limited to those aged 25 and older.

National Living Wage (Aged 23 and over) £8.91
National Minimum Wage (Aged 21 to 24) £8.36
National Minimum Wage (Aged 18 to 20) £6.56
National Minimum Wage (Under 18) £4.62
Apprenticeship Rate (Aged under 19 or in first year of apprenticeship) £4.30

National Insurance Contributions

Class 1 NICs (Primary Threshold/Lower Profits Limit) rise to £9,568. The Upper Earnings Limit (UEL)/Upper Profits Limit (UPL) rises to £50,270.

Corporation tax

There is no increase in corporation tax for this year or for next year. However, in April 2023, the tax will rise to 25% on profits over £250,000 which will be referred to as the Upper Profits Threshold. This is actually the first rise in corporation tax since 1974. It’s better news for smaller businesses as there is now a lower threshold for corporation tax, referred to as the Small Profits Rate, which will apply to profits under £50,000 and the rate will remain at 19% as of April 2023. For those businesses with profits between £50,000 and £250,000, there will be a new tiered corporation tax rate from April 2023 onwards although the government has not yet released the details of this.

VAT changes

There are no changes for VAT with the threshold of £85,000 locked until 1 April 2024. However, the reduced rate of 5% for businesses in the hospitality sector which was launched in 2020 and although due to end on 31 March 2021, has been extended until 30 September 2021. From this date a new rate of 12.5% will apply until 31 March 2022 with the 20% rate resuming from 1 April 2022. For the self-employed there are also income tax and VAT deferral schemes in place.

How can Caroline Streatfield Bookkeeping help you with your tax returns?

These are the major changes, but if you have any uncertainty how they will affect your business or your personal tax, please do contact us. Changes to IR35 and how Domestic Reverse Charge VAT will affect your business are explained in more detail in our previous articles. Caroline Streatfield Bookkeeping, based in Eastbourne in East Sussex can help you with your tax returns. Call us on 07982 682746 or 01323 885205 or email info@bookkeepereastbourne.co.uk. We will visit your home or workplace, if possible, within East Sussex and can also work remotely to cover other locations, which are further afield.

Time To Pay – Income Tax And VAT Deferred For The Self-Employed

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Time to Pay

Time to Pay will give self employed workers more time to pay their self-assessment tax bills. The Chancellor announced in his Winter Economy Plan that outstanding tax bills due by January 31 could be paid over the following 12 months. The extension is designed to help workers and businesses that are struggling to pay and cannot meet the January 31 2021 deadline because of COVID-19. In the latest article form Caroline Streatfield Bookkeeping, we give you a quick reminder of how self-assessment works, how you access the Time to Pay scheme, the instalment process, and how to get help should you need it.

You will still need to file your tax return by 31 January 2021

Those in the self-employed category usually fall within the Self Assessment system and have to file their tax return and pay their tax bill by 31 January every year. Some also have a second deadline date in July, which is known as payment on account. This had previously been extended until 31 January 2021. These payments can now be deferred further until January 2022. But if you do want to use the HMRC Time to Pay option, you must do it as soon as possible. HMRC does charge interest on late payments and penalties if you are more than 30 days late. However, businesses that can make their tax payments should do so.

Time to Pay

Paying in instalments – how Time to Pay works

Once you have filed your Self Assessment tax return, you may be able to pay instalments so the full amount is delayed until 31 January 2022. It should be noted that interest will be applied to the outstanding balance, starting from February 1 2021. However, additional penalties such as interest and any outstanding penalties will not be charged.

  • You owe £30,000 or less
  • You do not have any other payment plans or debts with HMRC

You will then be able to choose how much to pay straight away and how much you want to pay each month. This will be based on your individual circumstances, as you will need to complete an income and expenditure assessment. This will work out how much you can afford to pay and how much time will be required to pay the debt in full. Time to Pay is flexible and HMRC won’t usually ask you to pay more than 50% of your disposable income.

Setting up a payment plan

You can set up a payment plan online or call the Payment Support Service. When you set up online, you will need your Government Gateway User ID and password. In order to be eligible, you must not have any outstanding tax returns or other tax debts or any other HMRC payment plans set up. HMRC has changed its Time to Pay service for people who would incur financial hardship or personal difficulty, making it easier to set up an online plan. If you do need to talk to somebody, call 0300 200 3822 for the helpline, which is available form Mon-Fri 0800-1600. Ask to talk about Time to Pay.

Changes to the VAT deferral scheme

Businesses who chose to defer their VAT payments between March and June 2020 will now be able to make interest-free payments over the 2021-22 tax year. This option is available, rather than paying the full amount by March 2021. Again if you can make your payments you should do so. More information will be available soon.

How can Caroline Streatfield Bookkeeping Help Your Business

There really isn’t long to go before the deadline of 31 January to file your tax return online. If you want to take advantage of the Time to Pay scheme, you must do it now. The team at Caroline Streatfield Bookkeeping is here to help if you are struggling or require more information. Call us on 07982 682746 or 01323 885205 or email info@bookkeepereastbourne.co.uk to find out more.

Time to Pay

What Happens When You Get A VAT Inspection?

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A VAT Inspection can immediately cause stress, anxiety and panic, and has long been associated with being every business owners worst nightmare. However, knowing what to expect and getting prepared can really help for the visit from HMRC so that the inspection can be carried out quickly and without too much fuss. In this article we give you a brief synopsis of what VAT is and who has to pay it before giving you tips to help you prepare for a VAT inspection, what you might expect on a visit from HMRC and what happens afterwards.

What is VAT and who has to pay it?

Value Added Tax (VAT) is charged by businesses on services or products at the point of sale and the customer pays it. There’s no getting away from, working out your VAT is painstaking, complex and time-consuming. What’s worse is if you get it wrong, you can incur some heavy penalties. Whether you have to legally register for VAT or not is dependent on your annual turnover and the type of products you are selling. The current VAT threshold is £85,000 and so if your business turns over this amount and more, you must register for VAT and complete a return. Currently, there are 3 rates of VAT, namely Standard, Reduced and Zero.

Why is  HMRC carrying out a VAT inspection on my business?

In a nutshell, the purpose of a VAT inspection is to check you are paying and reclaiming the correct amount of VAT. Today, VAT inspections are triggered by HMRC risk assessments. There are a number of reasons why you may be visited including a change in your level of VAT repayments, a credibility check on your business when compared with similar enterprises, the risk of your business sector and a comparison of your annual account figures to the VAT return figures.

What do HMRC do if they plan to visit?

  • You are usually contacted by HMRC to arrange a visit
  • You can expect about 7 days notice
  • HMRC will confirm what information they want to see and how long the visit is likely to take
  • HMRC will inform you if they want to inspect your premises

Whilst you can ask HMRC to delay their visit, it’s possible that they will visit without an appointment and/or telephone you about your VAT. The regularity of the checks depends on the size and complexity of your business and whether you have submitted late or incorrect VAT Returns before.

What to do for an impending VAT inspection visit?

  • Review your accounting records
  • If you cannot do this, ask your bookkeeper to help you
  • Make any improvements or corrections before HMRC arrive
  • Your bookkeeper will help you to access your accounting processes and suggest improvements

What happens during the visit?

If you have any problems with your VAT, HMRC will work with you to right any problems. You will also be advised about any additional tax or penalties you have to pay. It is certainly in your interests to be helpful, as this will help to reduce the amount of the penalty.

What happens after the visit by HMRC to carry out a VAT inspection?

At the end of the inspection, the HMRC officers will set up a meeting to discuss the findings. You will hear in writing from HMRC about any concerns or issues that they have found during their visit.

  • What you must do to improve your VAT record keeping
  • Any corrections you must make to your VAT account
  • Whether you are overpaying or underpaying your VAT
  • Any penalties you have to pay

If any serious problems are discovered, fines can be levied of up to 30% of the underpaid VAT.

How can Caroline Streatfield Bookkeeping help you with your VAT returns?

Many business owners dread being told they have to have a VAT inspection. However, with the right advice, transparency and being compliant, you should be able to come through the process relatively unscathed. It is crucial to prepare yourself for a VAT inspection and talking to a professional bookkeeper about the ins and outs will put you in good stead. If you need help with your accounting records, why not talk to the experts at Caroline Streatfield Bookkeeping? We work with a lot of start-ups and SMEs who find keeping track of their finances essential for keeping their companies running smoothly. For more information, call Caroline on 07982 682746 or 01323 885205 or email info@bookkeepereastbourne.co.uk