The UK’s First Tax Day & Long-Term Budget Impacts
In a previous blog post, we covered the Chancellor’s 2021 Budget and highlighted how the format was different – with many of the tax proposals not being immediately applied. Therefore, we thought it would be worthwhile to remind readers of the 2021 provisions which will impact UK taxation in the next few years.
COVID-19 & the 2021 Budget
Several measures designed to support taxpayers as they navigate the impacts of COVID-19 have been extended to cover the tax year up to 5 April 2022.
- The cost of an employee’s home office equipment as provided by the employer or the employee’s cost of the equipment is reimbursed by the employer is not liable to tax/NIC as a taxable benefit assessed on the employee.
- COVID-19 tests costs paid for by the employee but reimbursed to the employee by the employer or the costs of COVID-19 tests provided to an employee by the employer are not liable to tax/NIC as a taxable benefit assessed on the employee.
- If due to COVID-19 the employee’s working hours commitment for Enterprise Management Incentives (EMI) qualification is not met e.g., the employee has been furloughed then for the period to 5 April 2022 such COVID-19 related non-working periods will not disqualify the employee’s EMI options from the favourable tax breaks applicable to EMI options.
Budget 2021 Measures Yet to be Applied
Unlike previous Budgets, in 2021 the Chancellor announced measures that will not take effect for many years to come.
- For the tax year 2021/2022 the CGT exempt amount, the personal allowance and the tax rate income thresholds are stated as under, but they will also remain at those levels through to and including the tax year to 5 April 2026.
- Personal allowance £12,570
- Basic rate income threshold up to £37,500 rate 20% & dividend rate 7.5%
- Higher rate income threshold from £37,501 to £150,000 rate 40% & dividend rate 32.5%
- Additional rate income threshold over £150,000 rate 45% & dividend rate 38.1%.
- NB: Scottish & Welsh taxpayers have their own tax rates.
- Likewise, the current Inheritance Tax thresholds and rates will remain unchanged for the coming year. However, the current nil rate band at £325,000 and the residence nil rate band at £175,000 are fixed at these levels until 5 April 2026.
- Class 4 NIC – (in effect a further tax on the self-employed individuals) for tax year 2021/2022 is charged at 9% on taxable profits above £9,568 (was £9,500 for 2020/2021) with an upper profits limit of £50,270 (was £50,000 for 2020/2021). With 2% rate charged on the 2021/2022 taxable profits above £50,270 The current upper profits limit of £50,270 is to remain fixed until 5 April 2026.
- For companies, the Corporation Tax rate remains at 19% for financial years to 31 March 2022 and 2023. From 1 April 2023 the Corporation Tax 19% rate increases to 25% for total taxable profits above £50,000 but with a marginal relief calculation for the total taxable profits between £50,000 and £250,000. Companies with total taxable profits above £250,000 will be liable to the higher 25% rate of Corporation Tax on all their taxable profits in full. New associated company rules will be introduced to deal with the Corporation Tax rate for members of groups of companies.
- The current £85,000 VAT registration and the £83,000 VAT deregistration annual income limits are to remain at these levels until 31 March 2024.
The ‘Tax Day’ on 23 March 2021 report
The Chancellor announced that there was to be a ‘Tax Day’ – on 23 March 2021. This day was eagerly awaited by members of the UK tax professional world, given the media discussions of major UK tax changes such as changes to CGT and pension tax, not to mention a review of the balance of the taxation rules between the employed and self-employed!
However, come the dawning of the first UK ‘Tax Day’ none of the above was announced. Instead of which we had announcements of strengthening the HMRC hand in dealing with tax avoidance and evasion and in particular tackling onshore or offshore promoters of UK tax avoidance schemes. All of which is welcomed!
Other areas that the ‘Tax Day’ covered included ensuring that in the future Tax advisers had sufficient professional indemnity insurance, but the much spoken of HMRC licensing and regulatory requirements for the tax advisory market is still up for grabs! There were some welcome changes to the administration of Inheritance Tax, including easing the requirement, as from 1 January 2022 for the filing of IHT Returns for the vast majority of non-IHT paying estates. There is to be no major reform to the taxation of Trusts.
As to business taxes, again there were no major announcements but there were documents published to assist transfer pricing – more of interest to the larger UK businesses – and there is to be some tidying up of VAT where there is a single price value for supplies at different VAT rates. However, there are no major changes to VAT on the horizon!
The first Tax Day turned out to be a bit of disappointment, but we believe the UK Tax Days are here to stay giving the Chancellor the chance to stick to the headlines on Budget Day knowing that the Tax Day can then be used as a follow-up with the detailed fiscal policies for the UK’s medium to long term strategic fiscal plan.
The announcements referred to above as to no major changes to the likes of VAT, taxation of Trusts and Capital Gains show that the results after the relevant professional bodies have their say in response to the consultation documents published by HMRC can change matters. Consultative documents do not mean that the matters raised will automatically be implemented in some form, which is a good thing!
MTD & Quarterly Tax Payments
Finally, one matter that keeps arising is the Government’s and HMRC’s stated concerns that the self-employed and companies have advantages over employees as to the timing of their tax payments. It overlooks the special requirements of the self-employed and companies such that their taxable profits are not known until after their accounting year-end.
HMRC state that with the rollout of the Make Tax Digital (MTD) then it will be possible for the self-employed and companies to file their accounts quarterly and pay their taxes quarterly. Certainly, the use of the MTD filing software will ease the act of online filing of quarterly returns but establishing the correct quarterly taxable profit may not be quite so easy. It should also be remembered that the self-employed and companies can currently already make their tax payments during the relevant tax year or accounting year on a voluntary basis. Perhaps this should be advertised more by HMRC!
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