A guide to the 2021 tax changes

12 May, 2021

As I’m sure you’re all aware there were several changes laid out in Rishi Sunak’s 2021 budget and now that the new financial year has begun, many of these are now coming into effect. These new rules will affect everyone at some point this year, in one way or another, so I wanted to take another look at exactly what the changes are, and who they’ll be affecting.

Tax changes for all taxpayers

One of the biggest changes coming in the 2021 financial year is the adjustments to the personal allowance and tax brackets.

Personal tax allowances and tax rates
Personal allowance
The amount you can earn before paying tax will increase from £12,500 to £12,570 for the 21/22 tax year and then will be frozen from 2022 to 2026.
Basic rate tax band
The tax will be at 20% on income between £12,571 and £50,270 for the 21/22 tax year. This is a slight increase from last year’s £12,501 to £50,000.
Higher rate tax band
Tax will be at 40% on income between £50,271 and £150,000 for the 21/22 tax year. This is again a small increase on last years amounts of £50,001 to £150,000.
Additional tax band
On income above £150,000 tax will be at 45% for the 21/22 tax year. There is no change on last year’s levels.
Tax penalties

This year the government will be introducing a points-based penalty system for those who pay their tax via self-assessment.

  • If you miss a submission deadline you will be given a point
  • The point thresholds are; annual two points, quarterly four points, monthly five points.
  • If you reach the point threshold you will receive a £200 penalty
There will be a point-based penalty system for those paying VAT (from April 2022) or tax under self-assessment (from April 2023). One point can correspond to a missed deadline and when you reach a threshold (annual two points, quarterly four points, monthly five points) you will receive a £200 penalty.
Stamp duty 
The stamp duty holiday on the UK and Northern Ireland house purchases were extended to 30th June 2021, with no tax liability on sales under £500,000. For those properties that sell for less than £250,000, there will be no tax liabilities until 30th September 2021.

Tax changes that will affect businesses 

National Insurance Contributions 
As a small business owner, you will have to pay Employee National Insurance contributions on your own income and collect Employer National Insurance contributions if you employ staff.
For class 1 Employer National Insurance contributions
The secondary threshold increases from £8788 to £8840.
You will then have to pay contributions of 13.8% on employees’ salaries above that level.
For class 1 Employee National Insurance contributions
Employees pay contributions of 12% on earnings between £9,568 and £50,270 in the 21/22 financial year. Employees then pay 2% on any earnings above £50,270.This is an increase on previous years so make sure you’re up to date with your National Insurance Contribution brackets.
Corporation tax
Although many of us were expecting big changes to corporation tax there will be no new rules coming in until April 2023.
From then it will increase to 25% for business with profits of more than £250,000, whilst businesses with profits below £50,000 will still continue to pay the current rate of 19%.

Tax changes that will affect the self-employed

National Insurance (NI) thresholds
Class 2 NI contributions
This year the threshold increases from £6,475 to £6,515.
If your contributions are between £6,515 and £9,568 you must pay £.05 per week in contributions. If your profits are above £9,568, you pay Class 4 contributions.
Class 4 NI contributions
This year the lower limit rises from £9,500 to £9,568. Above that figure, you pay contributions at 9 per cent of profits.
The upper limit has also increased from £50,000 to £50,270. If you earn above that you pay contributions at 2 per cent.
New IR35 rules

From April 2021, if you work for a large client through a limited company, the responsibility to determine your status and reporting it to HMRC is no longer yours, but of your client.

VAT reverse charge on construction and building services
If you are a VAT-registered subcontractor supplying services to other construction industry contractors, you just have to show, but no longer charge, the correct rate of VAT on your invoices to contractors.

The Auria Advantage

At Auria, we think that doing your taxes shouldn’t be taxing! We cover all manner of Tax Compliance and Tax Planning work ranging from Income & Corporate Tax to Capital Gains & Inheritance Tax and we can help you navigate the new 2021 tax year changes.

If you’re looking for some help and guidance to get you through the next tax season why not give us a call on 020 7291 1000.

We’re here to help!

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