Tax year 2021/22: New tax year – what are the key changes you need to know?

The tax year 2021/22 is upon us and many changes will be implemented from April 2021, affecting a wide range of businesses. These include the continued roll-out of Making Tax Digital (MTD) and the implementation of IR35 off-payroll working for medium and large private companies. Super-deductions for capital allowances begin from 1 April 2021 and a cap on R&D tax credits also comes into force.

Alongside these, several extensions to temporary measures were also announced at Budget 2021 because of the impact COVID-19 is having on businesses.

Below is an outline of the key tax changes from April 2021:

IR35 Off-payroll working

IR35 off-payroll working rules will now finally become law for medium and large-sized private companies on 6 April 2021, following its previous postponement due to the impact of COVID-19.

This will leave many private companies that employ contractors liable to pay their tax and national insurance contributions from this date.

This will impact many businesses and contractors.

If you are a medium or large-sized private organisation or non-government organisation, these rules will apply. You are likely to be affected by these rules if you fall into any of the following categories:

  • Workers providing their services through their intermediary
  • Clients receiving services from an individual through their intermediary
  • An agency that provides workers’ services through their intermediary
  • Particularly recruitment agencies

You can read more about how IR35 may impact you here

Research & Development (R&D) tax credit cap

Research and Development (R&D) tax credits are to be capped for small and medium-sized enterprises (SMEs) for accounting periods that begin on or after 1 April 2021.

This cap limits the amount of payable R&D tax credit that can be claimed to £20,000 plus 300% of the businesses total PAYE and national insurance contributions liability.

This cap does not apply to companies who are managing intellectual property, or who are creating or preparing to create this, if they do not spend more than 15% of qualifying Research and Development expenditure on subtracting or on the provision of externally provided workers, by connected persons.

More information on how we can help you with R&D tax credit can be found here.

Super-deduction

Super-deduction was one of the most useful tax changes for many businesses.

130% capital allowances can be claimed by companies from 1 April 2021, until the end of March 2023, on qualifying plant and machinery investments.

This means that for every pound a company invests, their taxes can be cut by up to 24.7 pence.

Tax Year 2021/22 – Capital allowances for vehicles

At budget 2021, changes to capital allowances for business vehicles were announced.

Whilst some allowances that were previously due to expire on 31 March 2021 are now extended until 2025, CO2 emissions thresholds are now reduced to encourage businesses to purchase lower emission vehicles.

The rules from April 2021 apply as follows:

  • 100% first-year allowances are only available for new and unused electric cars or those with zero CO2 emissions
  • 18% writing down allowances are only available on the purchase of cars with CO2 emissions that do not exceed 50g/km
  • For cars purchased with CO2 emissions that exceed 50g/km, writing down allowances are only available at a special rate of 6%.

For leased vehicles, the reduction in the emissions threshold to 50g/km will apply to the 15% restriction.

Construction Industry Scheme (CIS) changes from the 2021/22 tax year

Several changes are being introduced from 6 April 2021 to the Construction Industry Scheme. This is to try and prevent abuse of the scheme.

Key changes include:

  • Changes to the definition of a deemed contractor
  • Exclusion of the cost of materials in cases where the subcontractor directly incurs the cost
  • The introduction of a set-off amendment power
  • Widening the scope of the CIS registration penalty

Optional remuneration arrangements

These are arrangements where the employee is given a benefit in return for giving up some form of salary, allowance or cash payment.

For cars with CO2 emissions above 75g/km, school fees and accommodation, 5 April 2021 is the date when the transition period ends for these arrangements made before 6 April 2017. When calculating the benefit in kind for the 2021/22 tax year onwards, the Modified Cash Equivalent rules will apply.

NIC exemption for the employment of veterans

For their first year of civilian employment, employers of veterans will be entitled to a 12-month exemption from National Insurance contributions (NIC). This applies to new employment from 6 April 2021 and will also apply where a veteran was employed before this date and is still within their first year of civilian employment on 6 April 2021, but only for earnings paid on or after 6 April 2021.

The exemption applies to earnings between the secondary threshold and the upper secondary threshold (UST). Employers will still be liable to pay standard rate employer’s NIC on earnings above the UST. The exemption will be available for a 3-year period until 2024.

Van Benefit Charge for the 2021/22 tax year

This is reduced to zero for employees that are provided with vans that produce zero carbon emissions. This applies from 6 April 2021.

Making Tax Digital (MTD) – further roll out in the 2021/22 tax year

Where businesses are required to comply with Making Tax Digital for VAT, they are now required to have digital links for their first VAT return period, starting on or after 1 April 2021. You can find out more on the changes to Making Tax Digital in 2021 here.

VAT reduction for the tourism and hospitality sector

At Budget 2021 it was announced that the temporarily reduced rate of VAT for the tourism and hospitality sector of 5% will now apply until 30 September 2021.

Information on our specialist services for the hospitality sector can be found here.

VAT Returns

HMRC is no longer accepting VAT returns that use software with eXtensible Markup Language (XML) From 8 April 2021 to make the submission.

Businesses are advised to check with their software supplier to ascertain if they will be affected. This is to enable HMRC to consolidate VAT records on to its Enterprise Tax Management Platform, ahead of April 2022, when Making Tax Digital for VAT becoming mandatory for everyone.

Further information on VAT can be found here.

Stamp Duty

Non-UK residents will now face a 2% Stamp Duty Land Tax surcharge on purchases of residential property from 1 April 2021.

In addition to this, the Stamp Duty Land Tax holiday has been extended until 30 June (where the nil rate will remain at £500k). Following this, a tapering rate, reducing the nil rate to £300,000 will apply until 30 September 2021, before it is reduced back to its usual rates.

Alexander & Co provides a wide range of expert property tax services, further information can be found here.

Contact Us

For further information on any of the subjects covered in this article, our expert tax team at Alexander & Co will be more than happy to assist you. Please contact using the form on this page, call us on 0161 832 4841 or email info@alexander.co.uk.

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