The new tax year will start on 6 April 2021 and, with it, will come a few changes. Contractors and freelancers should stay on top of the latest industry news, so Gorilla Accounting are taking a look at what the new tax year brings and what it means for the self-employed. You can also find key dates you should be aware of as well.
So, what’s changing and what remains the same?
Personal Allowance
As contractor accountants, we’re always up to date with the latest legislation, including being aware of the amount you earn before you have to pay income tax. For the tax year of 2021/22, the personal allowance will increase to £12,570, as announced by Chancellor Rishi Sunak. Knowing this personal allowance can help you to figure out how it affects your personal finances.
When it comes to income tax thresholds, the amount of tax you have to pay every year depends on your tax band and how much income is above the personal allowance.
The basic rate threshold will increase to £37,700, and the higher rate threshold will apply once your earnings exceed £50,270.
IR35
This April, the IR35 reform in the private sector will also roll out, after being postponed from last year due to the coronavirus. During this time, contractors and end clients have had more time to prepare for the changes.
So, what will be different?
The end client or agency will now be responsible for determining the contractor’s IR35 status – as in, whether they’re inside or outside IR35. If you’re inside, they’ll need to pay the relevant national insurance contributions and tax.
These changes are only for medium and large companies, and they’re expected to add £1.3 billion per year to the Treasury from 2023.
Check out our “IR35 Update” blog to stay up to date when it comes to this legislation and read our “What is IR35?” page to learn more about IR35. Contact us for expert advice, as we can help you navigate this complex rule and ensure you’re maximising your tax efficiency.
Corporation Tax and VAT
When it comes to corporation tax, the 19% figure will stay the same this tax year. However, in 2023, limited companies will start paying at a rate of 25%, which Sunak claims is still one of the “lowest corporation tax” percentages in the G7.
It’s worth noting that only businesses with profits or more than £250,000 will be taxed at 25%. Small companies with profits of up to £50,000 will keep paying 19%.
In regard to VAT, the 5% reduced rate applied to the hospitality sector will be extended until 30 September, with an interim rate of 12.5% for another six months after that. The standard rate will only return in the tax year of 2022/23. The registration threshold for VAT is still £85,000.
Pension Allowances
Another change this tax year is that the state pension will rise by 2.5%, which is equivalent to a boost of £228.80 for the year. Still, the Chancellor announced that the lifetime allowance (the total amount you can save into private pensions before having to pay a charge) will stay at £1,073,100 until 2026.
National Insurance Thresholds
The national insurance thresholds will increase slightly in the tax year of 2021/22. The primary threshold will be £184 per week (or £797 per month and £9,568 per year) and the secondary threshold is £170 per week (or £737 a month and £8,840 a year).
Key Dates for the 2021/22 Tax Year
There are no real changes to key dates in the 2020/21 tax year, so you can expect to submit your returns and pay your taxes at about the same date as the previous tax year. Here are some popular dates you should keep in mind, although they are by no means comprehensive (for more dates, check out our accounting calendar):
31 May 2021 – As a self-employed individual with employees, you’ll have to issue their 2020/21 P60 certificate by this date.
5 July 2021 – Due date for PAYE Settlement Agreement.
5 October 2021 – This is the deadline to register with HMRC if you became self-employed or started receiving income from properties.
31 January 2022 – Deadline to file self-assessment tax returns for the tax year of 2020/21.
At Gorilla Accounting, we strive to help you stay on top of all key changes that came into effect once the new tax year started. We understand that you’re busy running your business and may not have time to spend on the financial side of things.
As sole trader accountants and limited company accountants, we have many years of experience helping self-employed individuals grow their business, so don’t hesitate to talk to us and we’ll be happy to discuss your needs with you.
