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With the end of the Coronavirus Job Retention Scheme on 30 September 2021, I thought it would be timely to prepare a quick overview of some of the current and pending tax changes resulting from the pandemic. With everything else that’s in the news at the moment, these are easily pushed to the background, but thinking ahead, it’s worth highlighting them again now as thoughts turn to planning for 2022 and beyond.
Capital Allowances - The Super Deduction
For qualifying expenditure on new items of plant and machinery incurred between 1 April 2021 and 31 March 2023, companies can claim 130% capital allowances. For example, this means that a spend of £10,000 will give rise to a tax deduction of £13,000.
More information can be found by clicking through to the HM Treasury Factsheet.
Expenditure on “special rate” assets such as hot and cold water systems and other “integral assets” will attract a 50% upfront deduction whilst the Annual Investment Allowance, giving 100% relief to businesses on up to £1 million of qualifying send will continue to apply until the end of 2021. This latter point is important since unincorporated businesses will not qualify for the Super Deduction.
There will be more flexibility to realise an earlier cash benefit from tax losses arising in accounting periods ending in the financial years 2021 and 2022, i.e. to 31 March 2022. These losses (subject to a maximum cap of £2 million for the earlier two years) can be carried back and offset against prior year profits (starting with the most recent years) for up to the previous three years.
Corporation Tax Rates
The main rate of corporation tax for the years ending 31 March 2022 and 2023 will continue to be 19%. However, this increases to 25% from 1 April 2023, with the existing 19% rate retained for small businesses, defined as those with annual taxable profits of up to £50,000. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief resulting in a gradual increase in the effective rate of corporation tax for many businesses.
National Insurance Rates
National Insurances rates will increase by a total of 2.5% with effect from April 2022, split 1.25% each between employer and employee respectively.
The increases will apply to both employed and self employed individuals earning above the class 1 primary threshold/class 4 lower profits limit (currently £9,568) with Employers paying the additional 1.25% in respect of employees earning above the class 1 secondary threshold (currently £8,840).
It is understood that with effect from April 2023, the increases will be legislated separately as a “health and social care levy” with National Insurance returning to 2021/22 levels.
Taxation of Dividends
Coupled with the increase in National Insurance rates, the tax rates applicable dividend income will also increase with effect from April 2022. This means that the applicable rates will be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. The £2,000 annual dividend allowance remains.
The 5% VAT rate applicable to certain supplies of hospitality, hotel and holiday accommodation, came to an end on 30 September 2021. It has increased to 12.5% with effect from 1 October and will return to 20% with effect from 1 April 2022.
Clark Benefit Consulting Limited
Martin’s advice, input and ability to interpret and report data on our fledgling ecommerce business was highly useful enabling us to take further growth steps confident that we were doing so on a sound commercially beneficial basis
Peter Graham, Managing Director of Assured Products Ltd