Tax Rates & Allowances from April 2021

Tax Rates and Allowances 2021/2022

Personal Allowances 2021/22

Personal Allowance – £12,570

The personal allowance reduces by £1 for every £2 of income above £100,000. The personal allowance is lost if taxable income exceeds £125,140 (2021/22).

Transferable tax allowance for married couples/civil partners – £1,260

Investment income allowances tax at 0%

Personal Savings Allowance (PSA) – £1,000 for Basic rate taxpayers

    – £500 for Higher rate taxpayers

    – Not available for Additional rate taxpayers

Dividend Allowance – £2,000

Other Allowances and Exemptions

Trading income allowance – £1,000

Property income allowance – £1,000

Rent a room relief – £7,500

Blind persons’ allowance – £2,520.

The dividend and personal savings allowance apply after the personal allowance and are calculated using UK, not Scottish, rates. Anything within these allowances still count towards the basic and/or higher rate tax bands.

Capital Gains Tax Exemption – £12,300

Nil Rate Band for Inheritance Tax  – £325,000

Residence nil Rate Band  – £175,000

The 2021/2022 allowances and basic rate band (20%) are frozen until April 2026.

Tax Rates

Rate                                                                       Tax Band              Income tax rate                 Dividend tax rate

Starting Rate for Savings                               £1 – £5,000                          0%                                          N/A

Basic rate                                                            £1 – £37,700                        20%                                        7.5%

Higher Rate                                                        £37,701 – £150,000          40%                                        32.5%

Additional Rate                                                 £150,000+                            45%                                        38.1%

Higher rate threshold (standard personal allowance + basic rate band) is £50,270.

Non-savings income uses up the starting rate for savings.

National Insurance Contributions

Self-employed and voluntary

Class 2 – Self Employed

Weekly – rate £3.05

Small profit threshold – £6,515

Class 3 – Voluntary

Weekly rate – £15.40

Class 4 – Self Employed

 Lower profits limit – £9,568

 Upper profit limit – £50,270

National Minimum Wage

18-20     £6.56/hour

21-22     £8.36/hour

23+         £8.91/hour

Domestic Reverse Charge – Construction Industry VAT

St David may soon become the patron saint of builders as 1 March sees some changes in the way VAT is accounted for on construction work.

Who’s affected?

VAT registered traders who are supplying construction services to another VAT registered  trader and the customer is a registered contractor within the Construction Industry Scheme.

Are all transactions covered?

No, it must be a supply of Construction Industry services which would be vatable at the 5% or 20% rate, AND your customer must be making an onward supply to someone else. So this will cover most instances of subcontractors supplying services to a main contractor, but not someone, for example fitting a new heating system in your business premises.

Employment agencies supplying staff are outside of the reverse charge rules.

So what does it mean?

In practical terms it means you will account for your input and output VAT on the same return, without actually charging your customer any VAT. This means you will lose the cashflow advantage of the VAT being paid to you in advance of your VAT payment due date.

Your sales invoice will include all the same information as previously;

  • it will also need the customer’s VAT number.
  • The amount of VAT to be paid by the customer
  • It must also state clearly that the reverse charge applies “Reverse charge – customer to pay VAT to HMRC” for example.

Mixed Supply

If a single invoice is raised for work covered by the reverse charge and work not covered then the whole of the invoice amount should be subject the reverse charge unless the value of the reverse charge work is less than 5% of the total, in which case VAT is charged on the whole of the invoice under normal rules.

What do I need to do?

 If you are a supplier to a main contractor HMRC suggest that your terms and conditions state you will assume your customers are end users or intermediary suppliers UNLESS they tell you they aren’t. Under this term you would charge VAT at the appropriate rate.

It is your customers’ responsibility to confirm they are making on onward supply to an unconnected party (intermediary), then you will not charge VAT on your invoice but will use the reverse charge mechanism. 

You will also require their VAT number.

If VAT is charged incorrectly your customer will have to ask you for a VAT credit to correct the position, it is not possible to recover the VAT from HMRC.

What about materials?

HMRC have confirmed that a single job is the supply of labour and any relevant materials and should be covered on a single invoice.

Company Cars – to buy or lease?

The company  – leases

The company will be the named party in the contract and is liable to make the payments to the leasing company.

The company gets tax relief on the cost of the lease and can recover 50% of the  VAT on the rental charges if VAT registered.

If there is a separate maintenance cost all the VAT may be recovered.

The corporation tax relief is restricted by 15% if the car’s CO2 emissions exceed a figure prescribed by the Treasury at the start of the hire period.

  • 6 April 2018 – 5 April 2021 110g/KM
  • On or after 6 April 2021 50g/KM.

The Company – hire purchase or ownership

In these cases the ownership of the vehicle passes to the company and capital allowances are claimed on the purchase cost of the car.

The rate of allowance is governed by the CO2 emission figure of the car:

  • Up to 50g/km 100% may be claimed (including full electric)
  • 51-110g/km 18% may be claimed on a writing down basis
  • Over 110g/km 6% may be claimed on a writing down basis.

There is an adjustment when you dispose of the car with sale proceeds (or market value is sold to a connected party) set against the remaining allowances available.

The company cannot recover any VAT.

The Driver

Whether you lease or buy the car, if you have any private use including normal commuting HMRC will expect to receive a P11d each year and the figure needs to be added to you tax return if you are required to file one.

The value of the benefit in kind is a percentage of the car’s manufacturer’s original list price, plus the MOLP of any optional accessories. The percentage is governed by the car’s CO2 emission value, and whether it is a petrol of diesel engine, and for electric cars by the range it can travel per charge.

You can reduce the benefit in kind by making contributions towards private use, however if you use a salary sacrifice scheme you are likely to be charged the statutory benefit in kind irrespective of the salary forgone.

Electric cars

Fully electric cars, that is not hybrids, are taxed as a benefit on the driver, at 1% of MOLP from April 2021.

A hybrid with emissions of less than 50g/km will be taxed 1-13% of the MOLP.

In addition to a capital allowance write off of 100% in the year of purchase you may also claim 100% allowances on any charging points you install.

Fuel Benefit

In addition to a benefit on the provision of the car there is also a benefit in kind if an employer provides free fuel for a company car.

Petrol and diesel are charged by reference to the car’s CO2 emissions against a flat rate for the year, which for 2021/22 is £24,600.

Currently the provision of electricity to charge an electric vehicle isn’t a benefit in kind.

Mileage claims

If you’re not providing free fuel then the employee will be entitled tax relief on the cost of business mileage, again not normal commuting.

  • Own car use 45p for the first 10,000 business miles and 25p thereafter.
  • Company car use Advisory Fuel Rate changes quarterly 7-18p per mile dependent on fuel type and engine capacity of the vehicle.
  • Electric 4p per mile (Hybrids are regarded as petrol or diesel cars)

As an employer you may either pay these rates tax free to the employee a record of the mileage claim most be retained. If you pay less than the HMRC approved rates the employee may make a claim for relief direct to HMRC.

If you pay over the approved rates you must include the excess as a benefit in kind.

March 2021 Budget Day

A quick round up of the main Budget announcements.  

Coronavirus Support

Furlough extended to September 80% of salary for hours not worked, workers must still be paid their full salary for hours they are working.

From July employers will be asked to contribute first 10% in July and then 20% in August of the employees’ furlough payment as well as the employers’ share of national insurance and pension contributions.

SEISS

Two additional grants have been announced to cover February 2021 onwards.

Anyone whose turnover has fallen by less than 30% will not receive the full 80% grant.

Anyone who was not self-employed before April 2019 and therefore did not qualify for the earlier grants can now qualify for grants 4 & 5 on the back of the submitted 2019/2020 tax return figures provided the return was submitted by midnight 3 March 2021.

Loans and Grants

A new round of Recovery Loans is also being made available with an 80% Government backed guarantee.

Hospitality, retail, and leisure industry specifics.

Also Restart grants of up to £6,000 for shops and £18,000 for leisure and hospitality.

There is three-month full holiday from business rates for those ailing sectors and an 2/3rds holiday for the remaining nine months of 2021/22.

5% VAT rate on food and accommodation to stay until September after which it will rise to 12.5% until at least April 2022.

Income Tax Rates and Allowances

Many personal reliefs, including personal allowance, CGT exemption and pension allowances are frozen at their 2021/22 rates until 2026.

Stamp Duty Land Tax

The temporary SDLT nil rate band of £500K BRB is extended to  30 June  and to £250K to end of Sept. Usual level from 1 Oct.

Company Taxation

April 2023 will see a return to two rates of corporation tax. Companies with profits of less than £50,000 will pay 19% and those with profits over £250,000 will pay 25%. In between these two rates is an effective hybrid rate. Close Investment Holding Companies will be charged at the higher rate irrespective of profit levels.

If you own shares in a company which doesn’t actively trade speak to us now.

A new temporary Super Deduction will apply to capital allowance claims from April 2021 – 31 March 2023. This will give the business a deduction of 130% of capital expenditure costs on most new plant and machinery. Long life assets which would usually attract the 6% rate qualify for a 50% first year allowance. Annual Investment Allowance is still in place for the first £1M expenditure before1 January 2022.

Disposal proceeds will be adjusted where a sale of the asset is made, and if you do sell the asset timing may be important to avoid a balancing charge at the new higher rates in 2023.

Business Losses

Any business, whether company, sole trade or partnership can carry that loss back to offset against the earlier three years profits.  For companies this applies to losses arising between April 2020 and March 2022, and is capped at £2M, and for unincorporated business the accounting perioded ended in 2021 and 2022 tax years. After this loss carry back will revert to the current one year.

If you’d like to speak with one of our team about anything in the Budget please call the office number.

Sick Pay Rules for Self-Isolation and Restricted Working Due to Coronavirus (Covid-19)

What to do if you think you are experiencing symptoms of Covid-19

Isolate – follow the UK Government guidance on self-isolating for 10 calendar days and test & trace.If you need to self-isolate or cannot attend work due to coronavirus – GOV.UK (www.gov.uk)

Test – follow the NHS guidance on testing and the track & trace system and get a test.If you’re told to self-isolate by NHS Test and Trace – NHS (www.nhs.uk)

Tell – Contact your employer to report your sickness without delay – you will need to confirm how you are , when you are having a test or what the outcome was if you have already had it and discuss what you will do while self-isolating in line with option (i) and (ii) below.

Certificate your absence – If you are unable to work during self-isolation (option ii below) then you need to obtain an isolation note through the Online isolation note service (Get an isolation note – NHS (111.nhs.uk)) on the 8th day of absence and email this to your employer.

Options if you are self-isolating:

  • If you are fit to work and your role can be undertaken at home, then you can continue to work whilst you are self-isolating.
  • However if you are not fit to work or your role cannot be undertaken from home, you will be placed on sick leave for the whole 10 calendar day period.

What to do if you have been contacted by NHS Test & Trace and told to self-isolate

Isolate:

If you’re told you have been in contact with a person who has coronavirus you need to do the following: – stay at home ( self-isolate) for 10 calendar days  from the day you were last in contact with that person – it can take up to 14 days for symptoms to appear – do not leave your home for any reason – if you need food or medicine , order online or by phone, ask family or friends to drop it off at home – do not have visitors in your home, including family and friends – except for essential care – try to avoid contact with anyone you live with as much as possible .

Test: Follow the NHS guidance on testing and the track & trace system and get a test. See above link

Tell:

Contact your employer to report your requirement to self-isolate without delay – you need to confirm the advice you have received from NHS Track & trace. You will need to confirm how you are , when you are having a test or what the outcome was if you have already had it and discuss what you will do while self-isolating in line with option (i) and (ii) below.

Certificate your absence – If you are unable to work during self-isolation (option ii below) then you need to obtain an isolation note through the Online isolation note service (Get an isolation note – NHS (111.nhs.uk)) on the 8th day of absence and email this to your employer.

Please note: The people you live with or in your support bubble do not need to self-isolate if you do not have symptoms. If you are unable to work while on self-isolation (option ii above) you may be entitled to sick pay.

 

Developing a winning team for our clients

Our team at KM are key to everything we do – and we take their development seriously. We have training accreditations with both ACCA and ICAEW. Support for professional exams is a given and assistance with career progression is encouraged.

Plus, keeping up-to-date with all the latest developments in accounting (technical and tech) to provide our clients – current and future – with a first class service. Come and talk to us about how we can help your business or organisation fulfil its goals.

Do you need a Shareholders Agreement?

In this life, nothing is ever certain. ‘Gentlemen’s agreements’ and trusting others to ‘do the right thing’ have no place in business. If you just have this type of verbal understanding with your colleagues, you will risk being let down simply because everyone has different priorities and will not necessarily act as you would in a given set of circumstances.

If a Shareholders agreement does not exist, then any disputes between shareholders/directors will have to be resolved by what is contained in the articles of association. These give the division of shareholding and the rights each shareholder will have. Relying on standard articles of association may leave you with problems such as difficulties in resolving deadlocks.

The shareholders agreement gives a contractual remedy if its terms are broken. It provides the owners of the business with a legal framework as to what is to happen, for example when:

  • You fundamentally disagree on the direction of the company
  • What happens when a shareholder wishes to leave
  • What happens on the death of a shareholder
  • Determining the rights and responsibilities of minority shareholders

In real terms, the more that you can set out in an agreed legal document can save you time, money – and heartache – further down the line.

Talk to us about whether drawing up a shareholders agreement is appropriate for your company – this is a service we can provide at any stage during your company’s lifetime. 

After Furlough , what next?

Do you need to consider redundancies ? See https://www.gov.uk/staff-redundant

Your legal obligations may include

Reference: Trade Union and Labour Relations (Consolidation) Act 1992, Part IV, Chapter 11

The government must help employees facing redundancy. To do this, advance notification of potential redundancies is required from employers. Failure to comply with the statutory notification requirements without good cause may result in prosecution and a fine, on summary conviction, for the company and/or officers of the company.

Where employers are furloughing their staff and they are not contemplating dismissing 20 or more staff in a single establishment there is no requirement to carry out a formal consultation and notify the Secretary of State

You are required  by law to notify the Redundancy Payments Service ( RPS) of a proposal to dismiss 20 or more employees as redundant at one establishment within a period of 90 days or less.

If you operate from more than one site , each site is treated separately for notification and consultation purposes. An establishment is the site where an employee is assigned to work . You must complete a form HR1: Advanced Notification of Redundancies ,  for each site where 20 or more redundancies are proposed . https://www.gov.uk/government/publications/redundancy-payments-form-hr1-advance-notification-of-redundancies

Where employers are furloughing their staff and they are not contemplating dismissing 20 or more staff in a single establishment there is no requirement to carry out a formal consultation and notify the Secretary of State ( using HR1)

Your minimum period for notification and consultation for:

  • Between 20 and 99 redundancies at one of your establishments , is at least 30 days before the first dismissal
  • 100 or more redundancies at one of your establishments , is at least 45 days before the first dismissal.

You must notify the Government at least 30/45 days before the first dismissal and before you issue any individual notices of dismissal

Practical tips for effective consultation

  • The importance of detailed planning . Consider using an Employment Lawyer , at least to provide you with a framework and template letters.
  • Establishing the business case for redundancies . Can you avoid them ?  Can you redeploy? What are your reasons for the proposed redundancies ?
  • Establish proposed numbers and timescale . How many ? Are they all at one ‘establishment’? When are the redundancies likely to take place ?
  • Identifying appropriate selection pools. Who may be affected  ? What categories ?
  • Identifying proposed selection criteria . What will you use ? Do you have performance data ? Is your criteria objective and fairly and consistently applied ?  Can you ensure you retain the best employees in terms of skills and expertise to meet the future needs of the business?
  • Establishing redundancy terms . If no terms are in existence , specific ones will have to be formulated. These may include voluntary as well as compulsory terms. Wil you use Settlement agreements ? Will employees have to work their notice or stay until a defined point in time ? How will payments be treated for the purposes of tax ?
  • Identifying outplacement and other support . Will you offer any support to redundant employees ? Job fairs , CV preparation , interview skills , time off for interviews ?  
  • Preparing appropriate communications. Key communications will include a letter sent directly to all affected employees . Take care to include employees on long-term sick leave, maternity , paternity, shared parental, adoption or parental leave, secondment, or holiday . Do not forget where employees have elected representatives, the arrangement for that election, numbers elected , who can stand, and the process of election must be explained . You may need to also consider communications to customers , suppliers , press releases etc .
  • Developing a timetable for consultation . Is the timescale realistic given commercial pressures ? Does it meet regulatory requirements and legal constraints ?
  • Allocating responsibilities . Who is doing what and when ? Who is controlling the process? Diarise key meetings .

Hopefully the above is helpful , should you find yourself in this situation . Please do speak to us to see if we can offer and assistance . 7

Accountants poised to help firms during difficult times

City AM ’s Ian Hall argues that good accountants’ services “have heightened relative value in these tough times,” noting that businesses would be well advised not to give in to the temptation to cut back on accounting costs.

Mike Suffield, director of professional insights at the ACCA, says: “Accountants help navigate the Government support available, manage liquidity and cashflow in the near term. They will build forecasts and review business models as organisations adapt and look to identify opportunities as they and the economy emerge from the pandemic,” while Michael Izza, chief executive of the ICAEW, says chartered accountants have been “looking to see what can be done from firms’ own resources, then looking at what government schemes can help.”

1st Floor, Block C, The Wharf, Manchester Road, Burnley BB11 1JG
Tel: +44(0) 1282 426 331 Email: [email protected]