With the beginning of new Financial Year from 6th April, the Government has decided to bring certain tax changes. Read on to this blog to learn the changes meticulously made for self-employed. So, let’s start…..
Spikes of personal allowance up to £12,570- but has been frozen till 2026
Threshold of personal tax allowance has encountered a spike; the new amount will be £12,570 for this new Financial Year. It clearly depicts that less tax should be paid by the self-employed for now! Unfortunately, government has frozen it till 2026 and so it can be a painful situation for the taxpayers in long-term.
You can consult your personal accountant in London. Threshold will never get impacted due to inflation. But certainly with an increase income static threshold will make you pay more tax than before. Post-pandemic situation is going to encourage the inflation and thus the taxpayers will understand the freezing of amount after 2022 in a much better way.
Rates and threshold of income tax that self-employed must be familiar with for 2021-22:
- Additional rate- 45% on total earning (about £150,000)
- Higher rate- 40% on total earning from £50,271 to £150,000
- Basic rate- 20% on total income from £12,571 to £50,270
National insurance bands and thresholds for 2021-22 has been changed for self-employed
Both Class-4 and 2 National Insurance should be paid by the self-employed via Self Assessment Tax Return. Payroll medium can be used to contribute to National Insurance by the small business owners running with employees.
This is how the thresholds of National Insurance are undergoing changes:
Class- 4 NICs and Class- 2 NICs, thresholds for small profits
- The lower profit limit of Class 4 National Insurance heightens to £9,568 from £9,500 (low rate of 9% tax will be paid by the self-employed)
- Upper limit gets increased to £50,270 from £50,000 (low rate of 2% tax should be paid by the taxpayers)
- Class 2 National Insurance threshold experiences the spike of £6,515 from £6,475 (must be paid if profit runs anywhere from £6,515 to £9,568)
According to ICAEW (Institute of Chartered Accountants in England and Wales) the limit of upper profit has been perfectly aligned to that of the thresholds of income tax.
Class 1- Employee and employer National Insurance contributions
The directors of limited company should pay for both employer and employee contribution in National Insurance via the conglomerates. Any business operating with the help of employees should pay National Insurance using payroll medium. To know about this in better way, please get in touch to your tax advisor in London.
- Employer NICs secondary threshold- It spikes up to £8,840 from £8,788 (13.8% of annual salary payments will be made for employer NICs)
- Employee NICs- 12% of income must be paid ranging within £183-£962 every week (an annual amount of £9,500-£50,000). Additional 2% can be paid sometimes as well.
Increase in the NMW (National Minimum Wage) and NLW (National Living Wage) should be noted as well.
- £8.36 every week accommodation offset (up 2% from £8.20)
- £8.91 for above 23 employees (NLW rate-up 2.2% from £8.72)
- £8.36 for the employees aged between 21 and 22 (up 2% from £8.20)
- £6.56 for the employees aged within 18-20 (up 1.7% from £6.45)
- £4.62 for the employees aged between 16 and 17 (up 1.5% from £4.55)
- £4.30 rate of apprentice (up 3.6% from £4.15)
New tax rules for self-employed will be leveraged from April
From April 2021, IR35 changes will be introduced to private sector. IR35 is referred to as the off-payroll working rules; which was previously changed in April 2020. Due to such outburst of Coronavirus, the reformation gets delayed by a year by the Government.
It is really beneficial for the freelancers and self-employed contractors who serve to leading clients through the intermediary. They will not be responsible to work out respective tax status as of now it is the responsible of the clients. IR35 is really complex and any wrong status can make you charge additional penalty.
As a concern numerous contractors feel this additional burden can make industry less flexible. Also, risk-oriented approach can be taken by the clients either by breaching the contract with them or by forcefully assessing them into IR35 which can affect the bottom line or agreement made within.
No change in Capital Gains Tax with frozen allowance
The Tax Simplification Office was ordered to simplify the CGT (Capital Gains Tax) by the government in 2020. It is the tax every person pays at the time of selling an asset of high value. CGT must be remained in line along rates of Income taxes that will be a spike in tax rate of course.
However, for the sake of the people government decides to freeze the CGT allowance of £12,300 till 2026. It indicates that initial profit of £12,300 is regarded as tax-free. But in terms of allowance of personal tax insurance never results in inflation that can make you pay a huge amount in the long haul.
Tax penalties in point-based system
According to the Finance Bill of 2021, point-based penalty is going to impose by the government for Self Assessment and VAT. It is considered that it will lead to a more consistent and fairer system. HMRC reveals that it has been imposed for penalising the taxpayers who fail to attain the obligations consecutively.
It will work as substitution for automatic penalties especially for those people who make isolated mistakes. Although the change has been brought in this Financial Year yet it will not come into effective till April 2023 for Self Assessment and April 2022 for VAT. Hence, you are advised to search using ‘accountants near me in London’ online for hiring a dedicated one for getting your job done.
This is how it performs:
- A point will be added for every taxpayer in missing each submission deadline
- £200 penalty will be imposed after attain a certain threshold points by the taxpayers
- For each missing future obligation, a penalty charge will be given by the taxpayers but that will never increase the total points
On the basis of submission frequency, penalty threshold varies greatly
- Monthly- 5-point threshold
- Quarterly- 4-point threshold (includes Tax Digital using for Income Tax Self Assessment)
- Annual- 2-point threshold
The total points get expired after the tenure of 2 years. But in the meantime you have to fulfill the obligations.
Extension of Stamp Duty Land Tax holiday
With the help of this particular tax holiday, self-employed persons can opt for making investment in various properties in 2021 promptly. For the initial amount of £500,000, the stamp duty holiday was supposed to end on 31st March 2020. Now, it has been extended till 30th June 2021. Afterwards, the amount will be tapered to £250,000 on buying the property till 30th September 2021.
Other changes in tax to be known by the self-employed for the year 2021-22
- Inheritance Tax Threshold is frozen till 2026 (with nil band rate of £325,000)
- Lifetime pension allowance is also frozen till 2026 with a whopping amount of £1.073 million
- Other tax allowances are going to remain unchanged with ISA (Individual Savings Account) of £20,000. No tax for savings interest and £2,000 of dividend tax allowance.
For personalised and dedicated tax and finance services and advisor, you can contact National Accountants London. This leading company is offering its comprehensive range of tax services throughout the country at competitive prices. Visit here for more details.