Corporation tax rates
Corporation tax will remain at 19% for the years beginning 1 April 2021 and 1 April 2022.
From 1 April 2023, the main rate of corporation tax will increase to 25%, and will apply to profits over £250,000. A small profits rate will also be introduced for companies with profits of £50,000 or less so that they will continue to pay Corporation Tax at 19%. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective Corporation Tax rate.
The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies.
Currently, trading losses can be carried back to the previous year.
The Chancellor announced a temporary extension to the loss carry back rules for company accounting periods ending in the period 1 April 2020 to 31 March 2022 and for tax years 2020 to 2021 and 2021 to 2022 for unincorporated businesses. Losses in these periods will be available to carry back for up to 3 years, with losses being carried back against later years first.
Carry back will be subject to a cap of £2,000,000.
National Insurance (NI) for the self employed
Class 2 NI will remain at £3.05 per week for 2021-22.
The nil rate dividend allowance will remain at £2,000 for 2021-22.
Making Tax Digital
Making Tax Digital (MTD) has been going through consultations over the past few years. The current status of MTD is as follows:
From April 2019, all VAT registered businesses with a turnover in excess of the VAT threshold (£85,000) have been required to file their VAT returns through compliant software under making tax digital. From April 2021, the soft-landing rules cease, which means that all transfers of data must be by digital links (for example, you cannot take the information from a spreadsheet and type it into a website to file your VAT – you must be able to upload the information from the spreadsheet to the website digitally).
It was confirmed in the Budget that MTD for VAT will be extended to all VAT registered businesses from April 2022.
MTD ISTA (Income tax self assessment) will be compulsory for the self employed and landlords with gross income (ie before deducting any costs) of £10,000 or more. Tax payers will be required to make quarterly reports of their income and expenses digitally, together with a fifth filing to finalise the figures and report any other income.
Every transaction will have to be recorded individually (ie you can’t add the sales/rent receipts for the quarter together and report a total figure, you have to enter every receipt individually), and that the information has to be transferred electronically to HMRC quarterly, with no retyping at any stage.
MTD for corporation tax is currently in consultation and will not be made compulsory until 2026 at the earliest.
Businesses can claim an annual investment allowance” (AIA) when they buy plant and machinery for use in the business. The standard limit is £200,000, which means that businesses can claim an immediate tax write down of the first £200,000 of expenditure every year. The AIA was temporarily increased to £1,000,000 for two years from 1 January 2019. This has been extended, so the AIA will remain at £1,000 to 31 December 2021.
For asset purchases in excess of the AIA, as well as some non-qualifying expenditure such as cars, expenditure goes into one of two pools – the main rate or the special rate pool, with current writing down allowances of 18% and 6% respectively, on a reducing balance basis.
The Chancellor announced a new ‘Super-deduction’ to encourage companies (NB Companies only, it does not include personal tax payers) to invest. From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:
- a 130% super-deduction capital allowance on qualifying plant and machinery investments
- a 50% first-year allowance for qualifying special rate assets
Cars with zero emissions are entitled to a 100% tax write down in the first year, those between up to 50g/km go into the main (18%) rate pool and those with emissions over 50g/km into the special (6%) rate pool.
The Structures and Buildings Allowance remains at 3%.
Off Payroll Working
A reminder that the reform the off-payroll rules in the private sector, due to come into effect from 6 April 2020 but delayed due to Covid, will now come into effect from 6 April 2021.