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2021-22 Tax Guide
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2021-22 Tax Guide
What's changed and how to minimise your tax bill

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01
Self-employed
02
Sole Traders
03
Contractors
04
Sub-contractors
05
Limited Companies
06
Landlord & Property Investors
07
Employed

Introduction

If you want your business to have a solid foundation and grow in the most economically efficient way, carefully managing all your tax matters as well as taking a proactive attitude to ensure you have the best tax-saving strategy can make all the difference.

The Government has introduced several key changes to be implemented in the tax year from April 6th 2021, which may well affect your income and tax liability. 

We appreciate the time pressures on you as a business owner or self-employed worker, so to make your life as easy as possible, our team of professional experts have put together a comprehensive, easy-to-understand guide to tax changes and how they might impact you.

In addition, we’ve made some recommendations as to how you can minimise your tax liabilities and take advantage of tax-free allowances to give you the best possible start to your financial year.

Self-employed
What's Changed?

Describing yourself as ‘self-employed’ is a definition of you as a worker and is also a recognised tax status. The term ‘self-employed’ applies to a broad range of people who run their own business.

These include:

Independent contractors

People who provide skilled services to clients on an ‘ad hoc’ basis, generally for the same company, and over a period of several months or longer. Contractors usually work in the construction industry and associated trades.

Sub-contractors

People who who are asked to fulfil all, or part of another company’s contract.

Freelancers

People who also work on an ‘ad hoc’ basis in a similar way to independent contractors, but they can juggle assignments for several different clients at the same time. Freelancers tend to work in the creative industries, e.g. photographers, copywriters, designers or journalists. Their freelance commissions tend to be required in a much shorter timeframe than that of independent contractors.

Gig economy workers

These self-employed workers gain their customers through a website or mobile phone ‘app’. Examples of these kinds of workers are taxi drivers, food delivery people or couriers.

Changes to National Insurance contributions

The majority of self-employed workers pay either Class 2 or Class 4 National Insurance contributions, or a mixture of both, depending on the level of their profits (your profit is the figure you are left with after you have deducted allowable expenses from your earnings). Those who are above their state pension age are exempt.

In the last tax year, self-employed people who had a profit level below £6,475 could decide not to pay any National Insurance contributions.

In 2021/2022 this level has gone up by £40 to £6,515. Last year, if your profit level was between £6,475 and £9,500 you paid Class 2 National Insurance contributions at £3.05 per week.

For 2021/2022 this has changed to paying £3.05 per week between £6,515 and £9,568. Last year, if your profit level was between £9,500 and £50,000 you paid Class 2 National Insurance contributions between £6,475 and £9,500, plus Class 4 contributions, calculated at 9% of whatever the amount was, on anything between £9,500 and £50,000.

For 2021/2022 you can have profits up to £9,568 before Class 4 contributions kick in. Profits of £50,000 and above have 2% contributions.

How to minimise your tax as a self-employed worker?

Claim all your expenses.

Think about all the costs which go towards running your business. The great majority of these can be regarded as allowable expenses by HMRC and will, therefore, reduce the amount of tax you will pay. If for example your turnover was £35,000 and you had £12,000 in allowable expenses, you will only pay tax on £23,000.

These include:

—  The administrative expenses of your office such as stationery and telephone bills

—  Travel costs you incur for work purposes, such as petrol, car parking, train fares etc

—  Certain items of clothing such as any protective clothing, a uniform and even a costume if you are a self-employed actor or entertainer.

—  Marketing, public relations and advertising costs which might be the costs of setting up and maintaining a website or social media site or producing marketing materials.

—  Training costs which relate to your business activity such as CPD or refresher courses.


Choose the best ‘Year-End’ date.


Choosing a year-end accounting date which is earlier in the tax year may give you a bit more time before you have to pay tax on your profits.  


Provide for later life with a Pension.


You may already have a deferred company pension if you have previously been employed, but investing in your own private pension as a self-employed worker will ensure you can claim tax relief. If you are paying the basic rate of tax (20%) then for every £100 you put into your private pension, the Government will top this up by £20.If you pay tax at the higher rate of 40%, you can claim extra tax relief. Scotland, however, differs from the rest of the UK as the higher rate is 41% which gives a higher rate of tax relief.


Make a habit of charitable giving
.

Your tax bill can be reduced if you pay tax at the higher rate of 40% and make donations to a charity. Everyone wins because the charity will benefit from the basic rate of tax relief, and you can claim extra tax relief. This would include sponsoring someone for a charitable endeavour.


Take advantage of the growth of your business
.

If your business is going from strength to strength and you want it to grow even more, you might consider moving from self-employed status to that of a limited company, with you as the Director. This will give you access to the opportunities for limited companies to reduce the tax paid.

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Sole Traders
What's Changed?

Higher National Insurance threshold

The Government has increased the threshold for self-employed workers, including Sole Traders, from £9,500 to £9,568 for the tax year 2021/2022.

It means that Sole Traders will only begin paying Class 4 National Insurance contributions (NICS) at 9% when they have profits between £9,568 and £50,000, and 2% above £50,000.  

How to minimise your tax as a Sole Trader?

Claim all your tax relief

Sole Traders need to submit their Self-Assessment tax return to HMRC at the end of the tax year, and if they are new to the self-employed way of working, it is easy to make errors and miss out costs they are incurring which could give them tax relief.

Many Sole Traders work from home and therefore need to look at the various expenses relating to keeping the home running and see which of those can be partly reclaimed to make the tax bill look a bit better. These costs can include building and contents insurance, mortgage or rental payments, utilities such as gas and electric, water rates, council tax etc.

Professional fees such as accountancy or IT consultancy can also be claimed, as can costs relating to the marketing and advertising of your business, for example, flyers, advertisement production, design and printing costs, brand and website design. The costs of equipment and work-related materials are also allowable such as a printer, computer and stationery items.


Work out your business travel

If you use your own car for travelling to business meetings, you need to keep a note of your business mileage as this will go towards lowering your tax bill. You can choose how you want this to apply. The simplest way, if your turnover is below the VAT threshold of £85,000 is to tot up the business miles and multiply the result by the current HMRC rate for 2021/2022 which is 45p per mile up to 10,000 miles travelled in the tax year, plus 25p per additional mile.

If you have a turnover of more than £85,000, you can choose the second option. This is where you would need to keep a complete record of all the mileage you have travelled, whether for business or for personal reasons. Then you need to add up everything related to running your vehicle and maintenance, for example, MOT, service, fuel (which means keeping all the receipts!), insurance etc. and then multiply that figure by the business percentage.


Pay into a personal pension


If you are a Sole Trader paying the basic rate of tax at 20%, you can pay into your own private pension scheme. You will then have the advantage of your payment being increased by HMRC by 20%. For example, if you paid £100 into your pension, you will receive an additional £20 into that pot. Although there are certain limits and restrictions to be taken into account, this is an excellent way of paying less tax.


Make charitable donations

When you make a donation to a charity as a Sole Trader, this is deemed by HMRC as a non-allowable expense – in other words, not a genuine running cost for your business. However, provided you have kept the proof of your donation you are allowed to claim tax relief. If you are paying tax at 40%, you can claim the difference between that 40% and the basic rate on your donation (20%). There is something for everyone in this arrangement because the charity will benefit from extra income, and you feel happy to have helped a good cause.

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Contractors
What's Changed?

The change to IR35 (off-payroll working rules).

IR35 refers to an initiative by HMRC aimed at discovering whether someone is genuinely self-employed, or cheating on their tax liability by acting as a ‘disguised employee’ (DE).A DE is somebody classing themselves as a freelance, self-employed person working on that basis for a particular client, but is actually working the same hours and carrying out the same duties as someone employed full time.

Up until April 2020, it has been the responsibility of the independent contractor to ensure they were complying with IR35 and not breaking the rules. After April 2020, this responsibility was due to move from the self-employed worker to the company for whom they are working.

In recognising the impact of Coronavirus on businesses, the Government postponed this shift to April 2021. This means that from April 2021, all private sector businesses will have to determine the IR35 status of any of its independent contractors or freelance contract workers.

However, in the meantime, that still leaves the onus on the contractor to ensure they are IR35 compliant, as HMRC will, at some point, be checking.

VAT Reverse Charge from October 2020

In recent years, HMRC has made it a mission to crack down on fraud in the construction industry, and this reverse charge is one of its initiatives in this respect.  It targets what HMRC refers to as ‘Missing Trader’ fraud when a fraudulent construction company is set up, to all intents and purposes operating as a bona fide company. They take the VAT on transactions for themselves without paying anything to HMRC and then vanish into thin air after a few months.

This scheme was due to start from October 1st 2019 but was postponed to October 1st 2020 and will relate only to specific construction and building services.

This reverse charge means the liability is now on the customer to account for VAT on any purchases, rather than the supplier. This will put a stop to VAT monies flowing between businesses, as the VAT element will need to be registered and declared on the invoice as a reverse charge.

Contractors and sub-contractors working in this industry who are supplying their services to a larger contractor will need to be aware of this change. There are several specified services to which this charge applies, such as: installing facilities like air conditioning systems, lighting or heating systems, fire protection, water supply installations, also for painting or carrying out repairs or alterations to structures and buildings.

Here’s an example of how the VAT Reverse charge could work for a Contractor:

David is a VAT registered Contractor who is the Main Contractor for a building project. He will need to call in the expertise of several different tradesmen to complete the job. He subcontracts part of the work to John, who is a VAT registered qualified Plumber.

Under the existing system, John completes his work and produces an invoice to David for £10,000 plus £2,000 being VAT at 20%, so a total of £12,000. 

From October 1st 2020, under the new system, John produces an invoice to Dave for £10,000 only and adds the statement “CIS VAT reverse charge applies at 20%. Dave pays John his £10,000 fee. John gets less than he would have done under the current system.

When David does his VAT return, he accounts for the output and input of the £2,000 VAT relating to John’s work.  David does the following calculations on his VAT return:

—  Box 1 - Output tax at £2,000 (which is 20% of £10,000)

—  Box 4 – Input tax at £2,000 (same figure as in Box 1)

—  Box 7 – Inputs - £10,000 (the net value of the payment he made to John)

The cashflow advantage goes to David because he would normally have to pay John the additional £2,000 upfront, and then not be able to reclaim it until his next VAT return. 

How to minimise your tax as a Contractor?

Understand your IR35 status

Deciding whether you are a contractor under the IR35 rules or whether you are, in fact, an employee is really important when it comes to working out how much tax you will pay. Contractor status will enable you to pay less tax than Employee status because as a self-employed person you get little or no job security and fewer benefits such as paid holidays, sick pay and maternity/paternity pay.

Ensuring you are IR35 compliant will be to your benefit as HMRC take a very dim view of non-compliance. If they suspect you are not complying with the rules, they can launch a complex investigation and are even entitled to ask for 100% of unpaid taxes. They will also be able to charge interest as well as the 100% unpaid taxes.

Some of the areas you might want to consider when making this decision are:

Control over your work - if you can choose where you carry out your work, the hours or days you work and the method of working, you would be classed as a Contractor. If you were working regular hours every week in one of the company’s locations, you would be classed as an Employee.

Can you be substituted? - If you cannot carry out your work as promised, do you have the facility to bring someone else in on your behalf? If you are the only person who is able to do that work, you would be classed as an Employee.

Are you officially one of the team? - If you are recognised by the general public in this way, for example by having a photo and biography on the company’s website, then you would be classed as an Employee.


Have a Pension Plan.

You need to consider planning for your own retirement by transferring some of your profits into a pension fund. You can claim tax relief on money paid into a pension fund from your income. There could be significant tax benefits for you as well as other advantages. Contractors can start to draw down from their pension fund from the age of 55 and can take out more than one lump sum if they wish.  


Are you eligible for tax credits?

There are a range of benefits to operating as a self-employed Contractor, but one of the disadvantages is the susceptibility of your income to changing circumstances.

HMRC have a way of assisting in these circumstances by way of Tax Credits which is a means-tested benefit. A contractor could qualify for working tax credit if they are working a minimum of 16 hours weekly, As far as HMRC is concerned, working can include looking for a new contract, going to networking events, and keeping your bookkeeping and administration up to date.

However, the formula used by HMRC to assess whether you would be eligible is quite complex using a sliding scale which involves factors such as how many children you have and your household income, but you can ask them for assistance in working out whether you would qualify.

Useful HMRC website links include a general overview of tax credits:

Gov.uk - Tax Credit Enquiries

and guides with examples of such calculations:

Gov.uk - Child Tax Credit and Working Tax Credit Leaflet
Gov.uk - Tax Credits Calculator



Make sure you claim all expenses.

Contractors can claim business costs as part of their expenses for tax relief. The amount is deducted from profits so the more business expenses you can claim, the less you will pay on taxable profits. Anything you have paid for which is totally for business purposes can be claimed, so it’s worth checking out the full list of allowable expenditure. Examples are IT administration fees, travelling for business and even your accountant’s fees.

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Sub-contractors
What's Changed?

Changes to VAT from October 2020.

If you are a subcontractor who is registered for VAT, you would normally add VAT onto your invoice for the services you are supplying to the contractor. The contractor would then pay you the amount you charged for your services plus the amount of VAT, which you then reflect in your Self-Assessment tax return.

This has been a very useful way of working for subcontractors as they relied on the VAT payment to aid their cash flow, especially if their bill is paid promptly. They may have used the VAT income to buy materials or equipment which could be offset against tax liability.

From October 1st 2020, with the introduction of VAT reverse charging, this will no longer be the case. Under the new system, you as the subcontractor will invoice only for the cost of your services. Your contractor will pay you and then account for VAT output and input on your services when he does his own tax return.

In one respect, subcontractors will find it simpler when they come to do their accounts because they have only invoiced for and received the fee for their services, so there is no need to account for VAT to HMRC on that transaction.

When you submit your invoice to the contractor, you will bill for your labour and materials as normal, but will not add VAT as you would normally do. Instead, you need to add a sentence onto your invoice which states “The CIS VAT Reverse Charge will apply at 20%”.Some subcontractors had been found by HMRC to be committing fraud by charging VAT on their invoices but then never declaring on their tax return. The new rules will eliminate this possibility because the VAT will not be paid to the subcontractor.

How to minimise your tax as a Sub-contractor?

Double-check your Tax Reference Number

When you set yourself up as a self-employed Subcontractor working in the construction industry, HMRC will issue you with a ten-digit number which is your Unique Tax Reference number – referred to as your UTR and specifically identifies you in their system. Keeping this number somewhere safe is vital because you must use it on all your communications with HMRC.
 
If you are starting to provide services to a new Contractor, you need to provide them with your UTR and your address. Before you can start to receive payment for your services, the contractor will check with HMRC your self-employed status and also whether you are CIS-registered. HMRC’s system will search through its list of registered Subcontractors for the UTR you gave to the contractor.

If it finds you, it will tell the contractor to deduct tax at the basic rate of 20% — all well and good. However, if HMRC doesn’t find you on the system, it will tell the contractor to deduct 30% tax which will make a big difference to your payment.

There may be a couple of reasons why you have to pay the extra 10% tax. If you discover you are being taxed at 30%, it is essential that you make sure you have actually given the Contractor your UTR number in the first place, and if so, that you have provided the correct number to them. Double-check that they themselves have not recorded this incorrectly.

Once you are satisfied that you and the contractor are right, you should get in touch with HMRC and let them know what has happened, and ask them to double-check that they have correctly registered you as a CIS Subcontractor as well as self-employed.


Consider registering for Gross Payment status

When you are registered with HMRC as a CIS subcontractor, you can apply for Gross payment status. This means that your contractor will pay you the full amount of your invoiced services, without deducting any tax. This situation greatly assists subcontractors with their cash flow throughout the year and may help to minimise the tax you will have to pay because your Self-Assessment will include expenditure incurred in that year which qualifies for tax relief.

The other bonus to having Gross Payment status is that Contractors see you as a ‘good bet’. They will know that you have had to go through the qualification process with HMRC to gain this status, meaning that they trust you to make your own tax payments on time and in the right amount. In addition, the contractor doesn’t have to think about accounting for your tax deductions to HMRC, thereby saving them time and effort. Your reputation is therefore enhanced with Contractors, and they may well decide to give the work to you rather than another subcontractor who doesn’t have this status. Indeed, some of the largest contractors will only employ subcontractors who have Gross Payment status.

It is therefore hugely beneficial to check whether you qualify. There are three main tests applied by HMRC to achieve Gross Payment status. You have to be working in the UK and using a bank for your cash transactions. The second criterion relates to your turnover and your business structure, and the requirements differ depending on whether you are a sole trader, limited company or partnership. As a self-employed subcontractor, you would have to have an annual turnover from construction work of £30,000 minimum.

Finally, you would have to pass HMRC’s complex ‘Compliance’ test, which relates to your tax regulations compliance over the last three years.If you have managed to pass all three tests and have been given Gross Payment status, you have to keep up the good work, or you will have that status taken away and be given a hefty fine to boot. HMRC will be reviewing your tax affairs annually to make sure you still meet the criteria.


Are you due a tax refund?

Self-employed subcontractors who are working in the construction industry have their tax deducted from payments for their services made by the contractor. The contractor withholds tax from you at 20% (or 30% if you are unregistered). That makes self-employed subcontractors different from other self-employed workers who would normally have gross payments by their clients.


When your tax is deducted via the CIS scheme, you might well be in line for a tax refund because you will have incurred expenses throughout the year which relate specifically to your trade and are therefore able to be offset against your tax liability. You will also have a personal allowance which determines how much you can earn before paying any tax.


Check your allowances

In common with all self-employed workers, you need to submit your Self-Assessment tax return to HMRC at the end of the tax year. You will probably be aware of the usual expenses any self-employed worker might be able to claim for, but as a subcontractor, there may be some surprising additions to the list.

‍These would include protective clothing with specialist overalls, headgear or working boots or shoes, cleaning and laundry bills, purchase of trade magazines relevant to your industry and even repairs and maintenance costs for your working equipment.

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Limited Companies
What's Changed?

Transport-related ‘Benefits in Kind’

If you are a director of your own limited company and providing yourself with a company car, you will be paying tax for this as a benefit in kind. For 2021/2022, the tax on company cars will increase, and the amount you pay will depend on the car’s list price and its CO2 emissions, fuel type and age, amongst other things.  If you are considering changing your company car, it is definitely worth thinking about a lower emissions model because of the potential for tax savings.

If you are a director or an employee who has a company car and is also lucky enough to have free fuel, you will be taxed on a percentage of what the cash equivalent would be. The same percentage calculations used by HMRC for your company car will be used to assess the amount of benefit in kind tax you owe on any fuel provided for personal use.
 
If your limited company is paying for a company van, you will pay an increased benefit in kind tax this year of £3,500.  If you are provided with fuel for the company van for your own personal use, your fuel benefit charge will be £669.


Corporation Tax

Part of the considerations when setting up a UK limited company is to recognise that you will have to pay a percentage of your annual profits as Corporation Tax. This tax can also apply to many different kinds of organisations such as housing associations, private members’ clubs and associations and trade associations.

Corporation Tax can represent quite a large chunk of your trading costs, so it really is essential that you pay the correct amount.

In 2020/2021, Corporation tax was 19% of business profits, and this has remained the same for the 2021/2022 tax year.  The rate is set to remain for 2022/2023 but a structured increase is to be introduced in 2023/2024.


Research and Development relief

Research and Development tax relief relates to work carried out on innovative science and technology projects. This work must be aimed at making advances in those specific fields by developing a new product or process or updating and improving one already in existence.

The Research and Development Expenditure Credit (RDEC) relief is currently 13% . If your expenditure on research and development fits the criteria and was incurred on or after April 1st 2020, you can claim RDEC at the increased rate of 13% which should help motivate more companies to invest in R & D.


Capital loss restrictions

A restriction will be in force from April 1st 2020 on carried-forward capital losses which are intended to be offset against chargeable gains. Deferred capital losses can now only be offset of up to 50% of chargeable gains in each accounting period, taking into account a £5m deduction allowance. If a period includes April 1st 2020, then specific transitional arrangements will apply.


Renovations and buildings allowance

If you build or renovate a structure or a building for purely business-related purposes, you can claim tax relief each year up to a total period of years. Specific criteria must be met to claim this relief, referred to by HMRC as ‘SBA’, for example, any contract for construction must have been signed on or after October 29th 2018.

In the tax year, 2019/2020 2% tax relief per year was available on certain SBA expenditure for up to 50 years. From April 1st 2020 this rate has increased to 3% per year and the total period for the allowance has been reduced to 33 years and four months.


Employment Allowance

If you are a business, charity (limited by guarantee), or a Community Amateur sports club whose Employer’s Secondary Class 1 National Insurance liability were below £100,000 in the last tax year, you can claim Employment Allowance. This Employment Allowance is capped at £4,000 for the tax year from April 6th 2021. There are certain criteria that must be met in order to qualify for the allowance.The allowance is aimed at helping eligible businesses with their cashflow and recruiting staff without them being liable for more National Insurance contributions.

Extension of Capital Allowances increase

If your company is investing in plant or machinery in what HMRC say are designated areas in Enterprise Zones, you could benefit from this extension.

If your company is in its first year of business, an enhanced capital allowance of 100% is available for certain environmentally friendly or energy-saving expenditure on plant and machinery. If the company is making a loss, it can claim a tax credit for this first year relating to this expenditure.

This measure will ensure that the 100% first-year capital allowance remains available for qualifying expenditure. 


Super Deductions

Increased reliefs have been temporarily introduced for the period 1st April 2021 to 31st March 2023 for expenditure on qualifying plant and machinery.  130% allowance for new plant and machinery that would normally only qualify for main rate allowances of 18% has been introduced to encourage companies to invest.  The allowance is claimed as part of the corporation tax calculations.


Increase in ATED

By the abbreviation ATED, HMRC means Annual Tax on Enveloped Dwellings. It is a tax mainly paid by a company owning UK residential property valued at £500,000 or more. A ‘Dwelling’ is defined as a flat or a house and also any gardens or land attached, and also any buildings in those gardens or on that land. There are some exemptions such as University halls of residence, Housing co-operatives, residential accommodation for military personnel and care homes.

The charges are banded, and for properties valued between £500,000 and £1,000,000 there is a flat charge of £3,700.  Higher bandings exist for properties of greater values, incurring flat rate charges according to the banding the property falls into.


Entrepreneur’s Relief

This tax benefit relates to the amount of Capital Gains Tax you pay if you, as an entrepreneur, sell your business or shares in your business, and usually tends to apply to wealthy business owners.

For 2021-22 you’ll be charged at 10% on the first £1m of gains, when selling a qualifying business, the same as the 2020-21 tax year. Entrepreneurs’ relief was slashed last April, so that instead of being charged 10% on the first £10m of gains, anything above £1m would be taxed at the usual 20%. The allowance applies at an individual level, so £1m is the maximum you can claim per person, rather than for each business you sell.

The Entrepreneur’s Relief is for you rather than your business, so you can only claim a maximum of £1m. To be eligible to claim this relief, you need to have been a director, and a shareholder for a minimum of one year.


Annual Investment Allowance

This allowance is a specific form of Capital Allowance by which your company can claim tax relief on any plant or machinery which you buy to use in your business. This is a useful benefit because you are allowed to deduct 100% of the cost of the items from your profits before tax. If you subsequently sell the items after you have claimed AIA you may be liable for tax.

The Government sets the limit at a different amount lasting for a number of years, and since 2010 this has fluctuated between £50,000 and £200,000 up to the end of 2018. For the period January 1st 2019 to December 31st 2021 this limit was increased to £1 million.

Assets such as office furniture or a new computer system would be eligible, whereas items which you might use for business entertainment such as a powerboat or yacht would not, so it is worth checking the HMRC list of what is allowed. Items for which you are claiming have to be newly purchased, rather than donated to you.

How to minimise your tax as a Limited Company?

Be VAT savvy

Contractors who are limited companies are required to register with HMRC for VAT purposes irrespective of whether their turnover goes above the £85,000 threshold. Doing so brings benefits in terms of credibility and establishing a professional image for potential clients. It also gives you tax advantages because you can reclaim VAT on purchases.HMRC assesses your VAT liability by calculating the difference between what your business charges its customers for VAT, and the VAT your business pays on its own purchases. You can be assessed under the Standard scheme or the Flat Rate scheme, where you account for VAT on each transaction.

If it’s the case that you are not expecting to claim back VAT on a large number of purchases, you might choose to opt for the Flat Rate Scheme. HMRC introduced this scheme to make VAT returns easier for small business owners. This could save you money because a fixed flat percentage of your turnover is applied for VAT purposes and when you first join the scheme you have a further discount on that percentage for the first year.

The big plus for small businesses is that you get to keep whatever the difference is between the VAT you have charged to customers and the VAT you will be paying to HMRC.To be eligible for the Flat rate scheme your turnover needs to be no more than £150,000, excluding VAT.


Pay yourself dividends

If you are a director of a limited company, you can take most of your income as a dividend and the remainder as just a small salary. This will benefit you in tax savings if the salary is below the tax threshold. In addition, dividends don’t have National Insurance contributions deducted.


Think about delaying your dividends

The distribution of dividends is a means of giving back some of the company profits to shareholders. It could be worth looking at when you make your dividend declaration. Depending on whether you have gone over the higher rate threshold in this current year, there could be tax savings in delaying profit drawdowns to another tax year. You should ensure your dividend declaration is only made when the company has enough profit to do so, otherwise, you will incur penalties for illegal declarations.


New pension scheme

If you currently put money into a personal pension, you could consider the benefit of setting up an executive pension scheme, where you are allowed to put in pre-tax income. This could give you significant tax savings.


Involve your spouse or partner

Splitting the company shares that you hold with your other half could have the advantage of being able to use the personal tax allowance of your partner or spouse. If you do decide to look at this option, the advice of a professional accountant is vital.

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Landlords and Property Investors
What's Changed?

Changed deadline for Capital Gains Tax

In the past, when you sold your second home or any property which you were renting out, you were required to pay Capital Gains Tax of 18% (for people on the basic rate of tax) or 28% for higher rate taxpayers.

You would have been required to declare this profit via your self-assessment tax return, which meant that you would not normally pay the Capital Gains tax until the following year by the end of January. That would give the seller a leeway of several months before they needed to pay.

From April 1st 2020, there is a drastic change to this arrangement, which now requires the vendor to pay the full amount of Capital Gains Tax within 30 days of the completion of the sale.

Landlords and property investors really need to take account of this tighter deadline because penalties will be enforced for late payments to HMRC.


Changes to Capital Gains Tax Lettings tax relief

As a landlord, you could claim Lettings relief if you were once resident in the property you are selling, and you have let some or all of the property for residential accommodation. You could deduct up to £40,000 from Capital Gains Tax liability.From April 1st 2020, you are only allowed to claim Lettings relief if you live in the property when it is being sold, sharing the property with your tenant or tenants.


Less Buy to Let Mortgage tax relief

In previous tax years, taking out a buy to let mortgage was seen as a huge tax advantage. You could claim tax relief on your mortgage payments depending on your rate of tax. That meant a basic rate taxpayer received 20% tax relief, those on the higher rate would receive 40% and 45% for the highest rate taxpayers.

From April 1st 2020, tax relief on buy to let mortgage payments is now at a flat rate of 20%. This means a significant loss to any Landlord who pays the higher rate of tax. In addition, to make the picture even worse, the higher the interest rate on your mortgage, the more you will be affected.

Change for non-UK resident Landlords

If you are a non-UK resident company owning a property business in the UK, your profits as a Landlord were previously taxed at the UK basic rate of 20% coming under the rules of UK income tax. HMRC, who delight in abbreviations, refers to this kind of Landlord as NRCL.

From April 6th 2020, HMRC requires all such NRCL profits to be taxed under the rules of UK Corporation tax which has a 19% main rate. However, there are various restrictions on allowable expenses and tax losses, which will now apply to non-UK resident Landlords.

How to minimise your tax for Landlords and Property Investors?

Pass the cost on

This is one option for landlords but not one which they would want to take lightly. Most Landlords understand that their tenants are paying what they can afford and would struggle with any increase, particularly in the unprecedented economic downturn predicted to follow the Coronavirus epidemic. You could also run the risk of being too expensive for the market.


Switch mortgage products

If you are able to do so without incurring major financial penalties, you could switch your mortgage to one with a lower rate of interest.


Form a Limited Company

If you put your property assets into a Limited Company, you would pay Corporation Tax (at a lower rate) as opposed to income tax on the profits you make.


Transfer ownership

If your spouse or civil partner is paying a lower rate of tax than you as the landlord, you might consider transferring the ownership of some of your properties over to them.


Check your allowable expenses

There are several allowable expenses which relate to you as a Landlord running and maintaining your property. Expenses such as paying for a gardener or a cleaner are included, as well as items such as service charges and letting agency fees.


Replacement items tax relief

You can reclaim tax on the money you have spent replacing certain items in your rental properties such as carpets, beds, sofas, crockery and kitchen equipment and appliances. They do have to be replaced rather than bought as new items.


NCRLs to check HMRC registration

If you already own property in the UK which you rent, then HMRC should have issued you automatically with a Unique Taxpayers Reference Number for your Corporation tax purposes.

If you don’t receive your UTR by that date, it is your responsibility to contact HMRC to avoid any penalties or mistakes, as your Corporation tax return and payment deadlines will differ from the way your previous tax was paid.

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What's Changed?

Income Tax bands

In England, Wales and Northern Ireland, your income tax rate and your personal allowance has increased to £12,570 for 2021/22 from £12,500 in 2020/2021.

If you earn taxable income up to £12,570, you pay no tax. Between £12,571 and £50,270 you pay 20% tax; from £50,271 to £150,000 you pay 40% tax and over £150,000 you pay 45% tax. In Scotland, the rates are different and more staggered. The lowest band is the same as the rest of the UK up to £12,570.

If your taxable income is £12,571 to £14,667, you pay a Starter Rate of 19% and then move on to a Basic Rate of 20% between £14,668 and £25,296.

If you earn between £25,297 and £43,662 you pay an Intermediate Rate of 21%, then a Higher Rate of 41% between £43,663 and £150,000.

Anything over £150,000 you pay 46%


Good news on National Insurance

From April 6th 2021, you are able to earn more before you start to pay National Insurance contributions. In the 2020/2021 tax year, the threshold was £9,500, and this has now been increased to £9,568 per year.


Increase to Minimum Hourly rate

From April 1st 2021, the National Minimum Wage and the National Living Wage amounts increased, depending on your age.

The Apprentice rate has gone up from £4.15 to £4.30 per hour. Under 18-year-olds can now receive £4.62 per hour, up from £4.55. If you are aged between 18 and 20, your rate has gone up from £6.45 to £6.56 per hour, aged between 21 and 22 it’s increased from £8.20 to £8.36 and anyone aged 25 or over will now receive £8.91 per hour, up from £8.72 last year.


Changes to Holiday Pay

Employers use a Holiday Pay reference period to calculate an average week’s pay for a worker with variable remuneration depending on how much work has been done and when, and unusual working hours.

Last year this was 12 weeks. From April 6th 2020 the Holiday Pay reference period changed from 12 weeks to 52 weeks providing the individual has been employed for a minimum of 52 weeks. Anyone who has been there less than 52 weeks will have a different reference period relating to the period of their employment.

The change to Holiday Pay calculation is aimed at creating more transparency around casual and zero-hour contract workers, and making it less easy for your employer to insist you take your holiday.


Use of Company transport and fuel

Employees who use company transport can choose whether they want to use it solely for company business or to have the benefit of it for their own personal use.

If your employer has provided you with a van, and you are using it for personal journeys as well as company business, HMRC regards that as a Benefit in Kind and will tax you accordingly.

From April 6th 2021 your Benefit in Kind tax will increase to £3,500.If your employer also pays for fuel for your personal use, this is also a Benefit in Kind, and there is a slight increase to £669.If your employer has provided you with a car and fuel which are being used for personal mileage, the Benefit in Kind tax has increased for this year, and the rate will vary depending on various complex calculations.


Student Loans repayments

From April 6th 2021, you can now earn more before you start to repay your student loan. The threshold for Plan 1 Student Loans has risen to £19,895 from £19,390, and for Plan 2 Loans this has gone up from £26,575 to £27,295.  If you have a Plan 4 Student Loan you start to repay when you earn £25,000.


State Pension increase

Anyone receiving their State pension will have an increase from April 6th 2021 of 2.5%. This brings the full State Pension payment up to £179.60 per week.


Pension Lifetime Allowance increase

The annual allowance which most people can pay into the pension for this year is £40,000. For the tax year, 2021/2022 the lifetime pensions allowance is £1,073,100. 

How to minimise your tax for as an Employee?

Are you paying the correct tax?

HMRC employees are human and can make mistakes like everyone else. It is well worth checking that you have the right tax code on your payslip, which will determine how much tax you pay. It’s particularly important to check this if you have changed jobs. You may well be entitled to a tax refund if it is incorrect, but on the other hand, you don’t want to end up paying more tax.


Have a ‘greener’ car

If you have the use of a company car and have the ability to choose the model, it will benefit you to switch to a car with low emissions. You will pay less tax on environmentally-friendly models than on a car with a higher CO2 emissions rating.


Do you have childcare costs?

If you pay for childcare for a child under the age of 11 and you earn less than £100,000 you could claim back 25% of these costs via the Tax-free Childcare scheme, up to a maximum of £500 every three months. You could also ask your employer if they would consider setting up a salary sacrifice childcare scheme.


Consider a Season ticket loan

Train fares are always on the increase, costing commuters more to get to work. Some season tickets have gone up quite significantly, and recent newspapers are reporting the highest price increases in a decade could be coming in January 2022, with an increase of 4.8%.

If you would be struggling to afford to pay the annual cost of the ticket, it’s worth asking your employer if they would be willing to offer you a tax-free loan which could save you money on travel costs.


Join a Pension scheme

Your employer will deduct your pension contribution from your gross pay before tax is deducted. They will also add their employer’s contribution to your pension pot. In addition, the Government will top up your pension with tax relief, so it’s a tax-efficient way of planning for your later years.


Have a stake in your company

Some employers offer free shares or allow you to buy them at a preferential rate. The value of shares in your company is exempt from income tax and National Insurance. However, if you decide to sell them, depending on the return, you may have to pay Capital Gains Tax. 

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