6 business and personal tax changes for the new tax year

We are sure you’re aware that a new tax year started on 6th April and that it bought with it a number of changes which could have a direct impact on both your personal and business finances.

As a local accountant, we just wanted to reiterate some of the key updates we’ve seen this year. This includes changes to both  basic rate on income tax as well as to the National Living Wage and National Minimum Wage.

Read on to find out how these changes could affect your personal and business finances. And if you do need any help, please get in touch. At Palmers, we love to help ambitious business owners grow their business.

1. The Personal Tax allowance has changed

For the 2021/22 tax year,  the amount you can earn before paying any Income Tax has increased to £12,570. If you’re paying the Higher Rate of Income Tax, the threshold has increased to £50,270.

These thresholds are now frozen until 2026.

2. National Insurance thresholds have risen

This year National Insurances thresholds have increased by 0.5% in line with Consumer Price Inflation. This means you will earn an extra £68 before any National Insurance payments need to be made.

If you are self-employed, you will have to pay Class 2 weekly contributions, but these rates have also been frozen. This means you’ll take home more money before you will have to pay any National Insurance contributions.

As with the personal tax allowance, these thresholds are now frozen until 2026.

3. Increases to the National Minimum Wage and National Living Wage

Each year the government reviews the minimum wage rates and usually updates them in April. This year has seen hourly rates increase for both the National Minimum Wage and National Living age. In addition, the age band for the National Living Wage has been lowered from 25 years to 23 years.  As a result, anyone who is 23-24 will see an increase in their pay.

Current rates for 2021/22 tax year

4. Dividend allowance remains the same 

If you’re a company director of your own limited company, you will already know that the most tax efficient way to pay yourself is to pay yourself a minimal director’s salary and then take the rest of your pay in dividend payments. 

The tax-free Dividend Allowance remains at £2,000 for the 2021/22 tax year and there are no changes to the dividend tax rates.   

•  Basic-rate taxpayers with an income of between £12,571 – £50,270 pay 7.5% on dividends
• Higher-rate taxpayers with an income of between £50,271-£150,000 pay 32.5% on dividends
• Additional-rate taxpayers with an income above £150,000 pay 38.1% on dividends.
  
  

If you need any advice on the most tax efficient way to pay yourself (whether you’re a director or sole trader), please get in touch. Every situation is different, and as experienced local accountants who provide a range of accountancy services and essential business services to clients of all sizes, we’ll be happy to provide you with some expert advice. 

5. Future Corporation Tax changes

There has been a lot of talk about Corporation Tax changing, but for the 2021/22 tax year, it remains at 19%. 

A rise in Corporation Tax to 25% will take effect from April 2023, but will only apply to businesses with profits over £250,000. The government will also be introducing a ‘small profits rate’ of 19% for companies with profits of less than £50,000. There will then be a tapered increase introduced to this rate as profits increase.  

Planning ahead for this change is worthwhile, so if you would like some advice, please give us a call and one of the Palmer’s team will be happy to talk through how you can reduce your Corporation Tax bill. 

6.  New “super-deduction” capital allowance introduced

The pandemic has seen the amount of business investment fall dramatically, which has prompted the government to introduce a new “super-deduction” capital allowance. From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery will be able to claim: 

• a 130% first-year relief on production plant and machinery investments
• a 50% first-year allowance for qualifying special rate assets
  
  

Under the super-deduction, companies will be able to cut their tax bill by up to 25 pence for every £1 they invest. 

As an example,  if a company spends £1m on qualifying plant and machinery and decides to claim the super-deduction,  the company can deduct £1.3m (130% of the initial investment) from its taxable profits.  This could end up saving the company up to 19% of that – or £247,000 – on its corporation tax bill!

By making capital allowances more generous, the government is hoping it will stimulate business investment and promote economic growth. 

If you are planning on claiming capital allowances, most tangible capital assets used in the course of a business are considered to be production plant and machinery.This could include: 

• Solar panels
• Computer equipment and servers
• Tractors, lorries, vans
• Ladders, drills, cranes
• Office chairs and desks,
• Electric vehicle charge points
• Refrigeration units
• Compressors
• Foundry equipment
  
  

If you’re not sure you can claim, please get in contact and we will be happy to offer you some expert advice. 

Need help with any of these changes? Get in touch with Palmers

If you’re at unsure about what these changes mean for you or your business, please get in touch. 

At Palmers Business Support,  we work closely with our clients to make sure  they are supported with the essential information needed for HMRC, as well as ensuring they pay as little tax as possible. And don’t forget, that we don’t just offer accountancy services, but also an extensive range of services  including business advice to help ambitious business owners grow their wealth and achieve their ideal work/life balance.