If you are self-employed landlord, run a company, employ others or simply earn additional income, you should be aware of the changes resulting from the latest budget.
These guidelines are based on English law and are not a definitive interpretation of the law, every case is different and only a court can decide, so always seek expert advice.
The real details of the budget measures only become available as the government publishes its Finance Bill, so some of that detail is spelled out here:
In the budget, Rishi Sunak set out his three-point plan for Britain’s economy post pandemic, which included (1) a major redrawing of the economic map following the government’s major borrowing spree, (2) freezes to the individuals’ personal allowance threshold and a higher tax take from the biggest corporations.
With the highest level of government borrowing since WW2 predicted to peak at 97.1 per cent of GDP in 2023/24, the government has set out a plan of action to reduce this over an extended period of time.
For example, in 2023 the rate of corporation tax, paid on company profits, will increase from its present rate of 19 per cent to 25 per cent.
“Even after this change we’ll still have the lowest corporation tax rate in the G7. We’ll also protect small businesses so only 10 per cent of companies will pay the full higher rate,” Mr Sunak said.
There are a number of tax changes that are now becoming clearer and these are things to be aware of in the future:
The main tax events coming in April/May 2021
01 April – Corporation tax payment for year to 30/6/20 (unless quarterly instalments apply)
06 April – 2020/21 tax year ended on 5th. 2021/22 tax year begins.
New “off-payroll” working rules start.
19 April – PAYE & NIC deductions, and CIS return and tax, for month to 5/04/21 (due 22/04 if you pay electronically)
01 May – Corporation tax payment for year to 31/7/20 (unless quarterly instalments apply)
19 May – PAYE & NIC deductions, and CIS return and tax, for month to 5/05/21 (due 22/05 if you pay electronically)
New personal service company rules to start in April
New “off-payroll” working rules that apply to certain workers supplying their services to clients via their own personal service companies start from 6 April 2021.
Under the new regime end-user businesses will be required to determine whether individuals are treated as an employee or not, if directly engaged. This is likely to be a significant additional administrative burden on the large and medium-sized businesses.
This is a complex area of the law based on several different court decisions. HMRC recommend end user organisations using the CEST (Check Employment Status for Tax) online tool to help with a determination, following which a Status Determination Statement can be issued setting out the reasoning behind the decision issued to any agency supplying the worker, if relevant.
The status determination notifies the agency that PAYE and NIC should be deducted from payments to a worker’s personal service company. That information will be passed down the labour supply chain if other entities are involved, and the ultimate fee payer is liable for making the tax and NIC deductions.
There’s no change for small employers
‘Small’ businesses, the definition of which is based on the existing Companies Act 2006 definition, will be outside of the scope of the new obligations and services supplied to such organisations will continue to be dealt with under the current IR35 rules, with the worker or personal service company effectively self-assessing. This applies to companies with an annual turnover of £10.2million or less, a balance Sheet total of £5.1 million or less, and less than 50 employees.
Employed or self-employed
A recent Supreme Court ruling that drivers for the ride hailing company, Uber are workers not self-employed individuals, and hence are entitled to holiday pay, pension rights and the right to be paid the national minimum wage, has major implications for many businesses.
Tax law doesn’t necessarily follow employment law, and the boundaries are becoming increasingly blurred, making it difficult to determine an individual’s employment status with absolute certainty, so if in doubt seek professional advice.
Super-tax-deduction for equipment
The Chancellor announced a new 130% tax relief for expenditure on new plant and machinery incurred between 1 April 2021 and 31 March 2023. This new tax relief is only available to limited companies and the Finance Bill reveals a nasty sting in the tail. When the equipment subject to the relief is eventually sold there’s a clawback, potentially at the same 130% rate.
If, for example, a new item of plant costs £100,000 the company would be able to deduct £130,000 in arriving at taxable profits, thus saving £24,700 in corporation tax at 19%. If, however, the plant was sold for £80,000 on 1 April 2023, 130% of the proceeds would likely be clawed back and £104,000 added to the company’s taxable profit, resulting in up to £26,000 corporation tax payable at the new 25% rate.
Fortunately, the claw-back rate will be reduced over time from 1 April 2023 onwards, so as to encourage long term asset retention.
The 130% rate does not apply to equipment such as air conditioning and central heating that normally qualify for a 6% writing down allowance. However, such “integral features” qualify for a special 50% first year allowance for the same two-year period.
Enhanced loss relief
In the March Budget it was announced that the normal one-year carry-back for trading losses will be extended to three years. This means that many businesses that have made losses during the pandemic may be able to reclaim a repayment of tax paid in that three-year period. This enhanced carry-back applies to unincorporated businesses as well as limited companies and the details are set out in the Finance Bill.
For corporation tax purposes the loss-making accounting period must end between 1 April 2020 and 31 March 2022 to qualify. For unincorporated businesses, the trading loss must be incurred in 2020/21 or 2021/22.
These new temporary carry back rules will permit losses to be set against trading profits made in the years ended 31 December 2018 and then 31 December 2017.
A Business Rates Review
Among the documents recently published is an interim report on the government’s Fundamental Review of Business Rates
This sets out a summary of responses to last year’s call for evidence and the final report is to be published in the Autumn.
Second Home Owners
The government is to legislate to tighten tax rules for second homeowners, meaning they can only register for business rates (and business rates relief) if their properties are genuine holiday lets.
This measure is intended to close a loophole that allowed some second homeowners to avoid paying council tax on their second property, and it has been revealed that some owners were even claiming coronavirus support grants for their second home “businesses”.
Tax Payment Processes
The Treasury has accepted a number of recommendations by the Office of Tax Simplification (OTS) on simplifying inheritance tax (IHT) reporting meaning that From 1 January 2022 over 90 per cent of non-taxpaying estates will no longer have to complete IHT forms for deaths when probate is required. The government is also considering introducing a new digital system for IHT and probate reporting.
HMRC is also said to be reconsidering the introduction of a “Pay-as-You-Go” system for the self-employed originally proposed 2016.