Tax update for 2021/22
Posted on 17th April 2021
There have been some changes that could affect you and your business in the 2021/22 tax year.
The amount you can earn before paying basic rate income tax at 20% has increased from £12,500 to £12,570. The threshold for higher rate income tax at 40% has increased from £50,000 to £50,270. The top additional tax rate on income over £150,000 remains at 45%. These levels are now frozen until 2026 (different rates apply in Scotland).
Director and shareholder salaries
If you are a company director or shareholder without any other income your tax-efficient salary for the 2021/22 tax year is likely to be £8,840 and you can pay yourself dividends of up to £41,430. If you take additional dividends, you will pay higher rate taxes. However, it’s important to take in to account all your personal circumstances to confirm that this is the best approach for you.
Your dividend allowances
You can still receive £2,000 in dividends before paying tax in the 2021/22 tax year. If you take dividends above this the tax levels are unchanged:
National Minimum Wage and National Living Wage
Although not a tax, the levels of the National Minimum Wage and ‘National Living Wage’ have increased and the age for receiving the minimum wage has gone down from 25 years to 23 years.
Benefit in kind (BiK) tax rates for company cars will affect vehicles first registered after 5 April 2020 with the benefit charge going up by 1%. On the other hand, tax charges won’t apply to fully electric cars for the 2020/21 tax year. However, there will be a charge of 1% of their list price in the 2021/22 tax year, increasing to 2% in 2022/23.
From 6 April 2021, the percentage applied to the list price of a company car will increase based on the published CO2 emissions from the Vehicle Certification Agency. You can use the HMRC’s figures to calculate your company car tax.
Company vans and fuel benefit for company cars
When a business pays for fuel that employees use personally or they use a company vehicle for personal use, it is a benefit in kind. The tax on this benefit increased by the Consumer Price Index (CPI) from 6 April 2021. It’s a complicated calculation so you might need some advice to decide whether it’s worthwhile for you.
Although the rate of Corporation Tax will stay at 19% this year, it was announced in the Budget that it will increase to 25% from April 2023. There will still be a rate of 19% for businesses with profits of less than £50,000 and a tapered increase as profits rise to £250,000 when the full rate will be payable.
Business investment tax
A new ‘super-deduction’ rate of tax relief will reduce business tax bills by 130% of what is spent on investment. The loss carry-back rules will be extended from one year to three years for losses of up to £2million. Tax repayments can be claimed to give you financial relief and cash flow support.
Eligible retail, hospitality and leisure businesses in England will continue to receive 100% business rates relief from 1 April 2021 to 30 June 2021. This will be followed by 66% business rates relief from 1 July 2021 to 31 March 2022, capped at £2million per business. The relief will apply to properties required to close on 5 January 2021, or £105,000 per business for nurseries and other eligible properties.
Recovery Loan Scheme
Lenders will guarantee 80% of eligible loans between £25,000 and £10million for businesses, including those that have already received support. The previous Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme are now closed.
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