The Budget was relatively silent on major tax changes, other than those planned for Corporation Tax, from 1 April 2023, where the current tax rate will increase from 19% to 25%. However, the fact that many of the individual tax allowances, such as the Personal Allowance, the annual Capital Gains Tax exemption, Inheritance Tax nil rate band and the Lifetime Allowance for Pensions, are all going to be frozen after 2021/22, until 5 April 2026, indicates the direction of travel for tax in the next few years.
In light of this, clients may want to consider whether there is a benefit in either accelerating when income or gains are received and where appropriate possibly transferring assets, either to your partner or to other members of the family.
Where a taxpayer is UK resident and non-domiciled – but is about to become deemed domiciled for UK tax purposes (due to having been in the UK for 15 years out of the preceding 20 years), then the ability to take advantage of the remittance basis of taxation will cease. This applies to those individuals who came to the UK in 2006/07. Equally, those who came in 2007/08 may want to review their affairs prior to 6 April 2022.
Going forward where an individual is deemed domiciled, they will be liable to UK Income, Capital & Inheritance taxes on their worldwide income & assets. There may be a need to consider options now to minimise their future UK tax exposure.
If you are currently non-resident but considering moving to the UK, then there would be a need to consider what, if any, rearrangement of your tax affairs should be done before you become UK tax resident.
We will also consider:
- Income Taxes and allowances – (IT)
- Capital Gains Tax – (CGT)
- Properties and Stamp Duty – (SD)
- Inheritance Tax – (IHT)
- Tax Efficient Investments
- Non domiciled individuals
- Moving to the UK
- Administrative matters and
- Tax changes already sign posted
Accelerating income, gains or the tax point
- Where taxpayers can control the timing of the receipt of income, they may want to consider accelerating its receipt, if their income for 2020/21 is lower than they had anticipated, or they have significant income tax losses available to claim.
- Where partners are shareholders in a private company, there may be scope to consider paying dividends to fully utilise unused tax bands. There can, in some instances, be scope to consider one party, waiving their dividend rights, subject to not falling foul of anti-avoidance legislation.
- One area that the Chancellor was silent on in the Budget was whether CGT rates could increase. Could there be a benefit in advancing a capital gain? Whilst the tax payment would be advanced, the rate is fixed at 20%, unless it relates to property or carried interest where the rate is 28%.
- Following on from this, if there is a likely capital loss, could that be deferred so that it is available to be offset against future capital gains, that may be taxed an increased rate?
- Where a previous capital gain has been deferred by making an EIS investment and claiming deferral relief, the gain will come back into charge at the time the EIS investment is sold. At that point, the gain will be taxed at the CG rate applicable when the deferral ceases. If the CG tax rate is to increase – could there be a benefit in considering if the date the gain is taxable can be advanced?
- IHT – currently has the concept of Potentially Exempt Transfers (PET), where a lifetime gift is made by an individual to another person (excluding their partner – where such gifts are generally tax exempt). There is a need for the transferor to survive 7 years from the date of the gift to be exempt from IHT. There have been concerns that PETs may cease and in future be liable to a 20% lifetime charge, increasing to 40%, if the transferor dies within 7 years of the gift. It is imperative that the transferor is comfortable, and they have sufficient assets to maintain their lifestyle both now and, in the future, before considering making any such gifts.Accelerating the tax point, will mean that any tax due will be payable by 31 January 2022, but there will be certainty as to the rates applying. If this is something that may be of interest, then we would be happy to discuss and see how we can assist.
- There may also be options to defer crystalising income or gains. However, due to the current speculation about taxes, this may be less attractive at this moment. Happy to discuss if you feel this may be relevant.
Income tax and allowances
- The personal allowance (PA) is currently £12,500, increasing to £12,570 for 2021/22 through to 5 April 2026. The PA is reduced to nil for those with adjusted net income over £125,000 (£125,340 for 2021/22). The PA is reduced by £1 for every £2 by which your adjusted net income exceeds £100,000. The marginal tax rate between £100,000 and £125,000 (£125340) exceeds 60%.
- The marginal income tax rate remains unchanged at 45% for taxable income exceeding £150,000 (46% if you are a Scottish taxpayer). The current guidance is that these bands will remain in place to 5 April 2026.
- Where an individual’s income exceeds £150,000, any dividends received exceeding £2,000 are taxed at 38.1%, except in Scotland where they are taxed at 46%.
- Where an individual is either a basic rate or 40% taxpayer, the initial £1,000 or £500 respectively of savings income is exempt from tax. No such relief applies where the taxpayer’s income exceeds £150,000.
- Cash gifts to UK charities (and certain European charities) are eligible for tax relief under the “gift aid” scheme. Under the mechanics of the relief, 20% of the gross gift is paid by HMRC to the charity, and so the taxpayer must ensure he pays tax equivalent to this amount.
- To give an example, for a 40% taxpayer making an £800 donation to a charity, the gross value of the gift is £1,000 since the charity can claim back £200 from HMRC. The individual may claim 20% tax relief on their tax return on the gross value, reducing the net cost to £600.
- The gift can even be made after the end of the tax year and “carried back”, provided that, it is paid before the earlier of the date the original tax return is filed and 31 January following the end of the tax year in which the relief is being claimed. In some cases, if there is a commitment to make contributions over a few years – could there be scope to advance when the payment is made?
- Many tax allowances and reliefs are restricted to the higher of £50,000 and 25% of a taxpayer’s total adjusted income. Charitable giving is not covered by this restriction, the only factor to ensure is that the taxpayer has paid sufficient income and capital gains taxes to cover the tax paid by HMRC to the charities.
- This relief is particularly valuable to wealthy individuals who have a significant UK tax exposure, together with substantial surplus funds and philanthropic goals. In some instances, where taxpayers have a UK & US tax exposure there may be possible to structure a payment to qualify for relief in both jurisdictions.
- Where a taxpayer has philanthropic goals, there may be a desire to create a charitable trust either during their lifetime or via their Will. There can be various UK tax benefits in such an arrangement. We can provide further details if of interest.
- Gifts of land, property and shares can also be made to charities. This can generate, income, capital and IHT benefits. Asset donations can therefore be particularly attractive.
- Registered pensions remain very tax efficient. The combination of tax relief at your marginal tax rate on contributions, tax free growth in the pension fund itself, as well as the ability to take a 25% tax-free lump sum on retirement (up to the maximum of the lifetime allowance (see below)) make these vehicles very attractive.
- There has been significant Press speculation that pension tax relief at marginal rates will be withdrawn and possibly limited to basic rate relief (as with interest relief on buy to let properties). Therefore, clients may want to consider whether it is appropriate to make further payments before 5 April 2021, to claim their full relief for 2020/21, together with any unused relief brought forward from the three previous tax years. Any unused relief for 2017/18 must be claimed by 5 April 2021 and to do so the taxpayer must have paid the maximum contributions for 2020/21.
- Pension contributions of up to the lower of an individual’s earnings and £40,000 can be contributed to a registered pension scheme can generally be claimed as a tax deduction (the “annual allowance”). However, there are a couple of factors to keep in mind, firstly the annual allowance is a combination of employee and employer contributions and secondly, normally pension contributions are paid net to the pension company. So, for example, if you want to contribute £40,000 to your pension scheme, you need to make a net payment of £32,000. HMRC will then contribute £8,000 to your pension company.
- There is one exception to the general rule about pension contributions described in paragraph 21 above. This can apply where either a partner has no earned income, or possibly also young children. In that case, it is possible to invest £2,880 each year into a pension, which will be grossed up with tax relief of £720. This means that £3,600 can be invested into a pension at no tax cost.
- Where an individual’s taxable income from all sources, not just earnings, exceeds £240,000, the relief is reduced by £1 for every £2 over £240,000 resulting in a maximum deduction of £4,000 if income is greater than £312,000. It is believed that these continue to be the rates applying for 2021/22.
- Pension contributions are particularly valuable for those earning between £100,000 and £125,000 since they are subject to a 60% tax rate on that income as explained above.
- However, there will be a tax liability where the value of the funds exceeds the lifetime allowance (LTA) of £1,073,100. The LTA has been “frozen” at £1,073,100 until 5 April 2026. The tax charge can be as much as 55% on any excess. Client’s may want to consider drawing benefits now. If so, this is something to discuss with your financial advisor.
- The important factor to remember is that the LTA is the size that the fund, not the level of premiums that can be paid. Equally, if your pensions are worth below the LTA, but you have a few years before you retire, you may want to consider with your financial advisor either stopping or reducing future pension contributions. If you decide to stop receiving contributions, you may need to inform your employer if they are making contributions.
- When it comes to drawing a pension, rather than buying an annuity, an individual may decide to continue to have their funds invested and claim income drawdown. In doing so, future pension contributions can be made, but there is a heavily reduced to an annual allowance of £4,000.
Married couples and civil partnerships
- Married couples and civil partners are generally able to transfer assets between themselves, without there being any UK tax exposure. There can be IHT implications where the two individuals do not have the same domicile status for UK tax purposes. If relevant, we would be pleased to discuss.
- Due to this favourable treatment, the parties may wish to contemplate a transfer of income producing assets between themselves to ensure that their overall income is taxed at the lowest possible rates for both parties.
- For couples with children, it may be possible to transfer assets between the parties, to enable both spouse’s income to be below the £50,000 threshold of the High Income, Child Benefit charge. In some cases, such asset transfers or changes to income rights between such parties, there may be a need to consider the possibility of anti-avoidance provisions applying.
- There may also be a need to consider, whether transferring assets may adversely impact, tax benefits or reliefs that the current owner already enjoys.
National Insurance (NI)
- The threshold set by the government for employees and self-employed paying Class 1 or Class 4 NICs respectively, is currently £9,500, rising to £9,568 from 6 April 2021.
Personal Service Companies (PSC) and IR35
- The IR35 rules are designed to counteract the tax benefits for individuals of providing their services to clients/end users through a PSC, whilst being viewed as employees by HMRC.
- New rules are due to take effect from 6 April 2021 which will require all end users (both public and private sector) to determine whether the relationship with the worker would be one of employment if the worker were directly engaged falls on the end user. There are limited exceptions to this, namely where the user is deemed to be small sized (based on the definition of small businesses in 2006 Companies Act).
- Where the rules apply, the end user must issue the contractor with a status determination statement and withhold PAYE (income tax and national insurance) from all payments made to the personal service company of the individual.
- Individuals currently engaging via a personal service company, as well as end users, should review contracts and operations by 6 April 2021 in order to ensure compliance with the new rules.
Capital gains tax (CGT)
- The capital gains annual exemption is £12,300 for 2020/21 and will remain fixed at this rate until 5 April 2026. That available for trusts is normally 50% of that available for individuals. Unlike the income tax personal allowance, this is not reduced for high income taxpayers. The annual exemption is not generally available for non-domiciled individuals claiming the remittance basis.
- The capital gains tax rate is normally 20% (including commercial property), except for carried interest qualifying as capital gains and residential property where it is 28%. Where carried interest payments aren’t viewed as a capital gain, there can be “income-based” carried interest taxed at 47%.
- Individuals should consider whether steps can be taken to crystallise gains on assets before 6 April 2021 in order to take advantage of their annual exemption. For example, assets could be sold and then repurchased. Normally shares cannot be sold and reacquired within 30 days. There are some options that may avoid this rule applying.
- If the individual has capital gains taxable for 2020/21 then he or she may wish to consider selling other assets standing at a loss before 6 April 2021, in order to offset the gain. Where there are capital gains and losses in the same tax year, these must be offset first and then the CG annual exemption is claimed. However, where a loss is brought forward from an earlier tax year, the annual exemption is claimed in priority to the losses.
- Where an investment has failed it may be possible to submit a “negligible value” claim, even though you continue to own the asset. In some circumstances, there may be scope to carry back the loss to an earlier tax year.
- In some instances, it may be possible to claim a capital loss against income.
Business Asset Disposal Relief (BADR) – (previously Entrepreneurs’ Relief)
- BADR is a lifetime allowance which allows the initial £1m of capital gains to be taxed at 10%, rather than the normal 20%, so saving up to £100,000 of tax. There are several scenarios where this relief is available. The rules have recently been tightened and there has been some speculation that the relief may be withdrawn.
Properties and Stamp Duty (SD)
Principal Private Residence Relief (PPRR)
- An individual who sells their main residence generally qualifies for exemption from CGT, provided that the property was their main residence throughout the period of ownership. Married couples and those in civil partnerships can normally only have one PPR.
- There are a few scenarios where a taxpayer is “deemed” to have occupied a property, even though this was not the case. For example, the last 9 months of ownership, even though you may have acquired a new property.
- Where taxpayers have more than one home, they can within 2 years submit an election to HMRC to designate which should be viewed as their PPR for tax purposes.
- There also is a further CGT relief called letting relief. This applies where a property has been both a PPR and was then subsequently rented out. The maximum relief is £40,000 (tax saving of £11,200). However, since 6 April 2020 it has been necessary for the taxpayer and the tenant to have lived in the property at the same time, even if the letting relief is partly prior to this date. Accordingly, this relief may be less valuable than in the past.
UK residential property CGT payment
- From 6 April 2020, CGT due on the sale of residential properties must be paid to HMRC within 30 days of the transaction, instead of being paid at the time of filing the self-assessment tax return. This applies to both residents and non- residents; the only exception is where the gain relates to a property fully qualifying for PPRR. The gain is subsequently reported on the individual’s self-assessment tax return for that year and any adjustments to the calculation can be made and reflected with submission of the return.
Rental properties and Mortgage Interest Relief
- The phase out of mortgage interest relief at individual taxpayer’s marginal tax rate for residential properties that are let is now complete. From 6 April 2020 onward all mortgage interest costs will be given as a basic rate (20%) tax deduction. Where this is a major concern and there are significant properties, landlords may want to consider restructuring how the investments are held in the future.
Stamp Duty Land Tax (SDLT)
- From 6 April 2021, a new 2% SDLT surcharge will apply to non-residents purchasing residential property in England & Northern Ireland. The 2% is added to each band of the SDLT rates that apply to UK residents, but excluding the current Stamp Duty holiday. For example, normally the initial £125,000 cost of a property is exempt from SD. If a non-resident acquires such a property, there will be 2% charged on the first £125,000.
- If a non-resident becomes UK tax resident within 12 months of the transaction, it may be possible to reclaim the additional 2% incurred.
- The Chancellor has announced that the Stamp Duty “holiday” where there is no charge on the initial £500,000 – has been extended to 30 June 2021. On the 1 July, the nil rate band is reduced to £250,000 and then from 1 October 2021 it returns to £125,000.
Inheritance Tax Planning
- A taxpayer who is UK resident and domiciled (or deemed domiciled) is liable to IHT on their worldwide assets, with credit for any foreign taxes that are paid in respect of the relevant assets. Whereas an individual who is UK resident and not domiciled is liable to IHT on their UK assets only.
Gifts on Death
- The IHT nil rate band (NRB) remains at £325,000 for 2020/21 up to the end of 2025/26. This relief has not changed since April 2009 and if it had been increased by inflation each year would be just less than £500,000.
- Gifts between spouses are generally tax exempt (assuming both have the same domicile status). Therefore, if the first spouse leaves all his/her assets to the surviving spouse, then there will be two NRBs available to be claimed on the second death.
- There is an additional NRB of £175,000 for 2020/21, so that the overall NRB is £500,000. The relief is available where either the deceased’s main residence is passed onto a direct descendent (children & grandchildren), or the party has downsized and left other assets of an equivalent value to their direct descendants. Again, this is a relief that can be transferred between spouses. However, where an individual’s assets exceed £2m, then the additional relief will be tapered down so that the nil band is reduced to £325,000, where the net assets exceed £2.35m.
- Where individuals are unsure about making lifetime gifts, which are touched on below, they may want to make provision in their Will. If they decide to leave 10% of their net estate to charitable entities, then the IHT rate is reduced from 40% to 36%. If this is of interest, then legal advice should be taken to ensure that the individual’s Will is correctly drafted.
- Individuals who are comfortable that they have sufficient assets to maintain their standard of living both now and in the future, may want to consider some or all, of the following.
- Annual gift exemption of £3,000. It is possible to pick up the previous year’s exemption, so that in year 1, there can be a total payment of £6,000.
- The small gift allowance of £250 per done.
- Gifts in contemplation of marriage- (£5000 per child, £2,500 for grandchildren and £1000 to anyone else)
- Regular gifts made from surplus income, not required to maintain their living standards. It is important that the payments are documented that it can be shown that they are regular, are funded out of income (not capital) and that the person making the gift can maintain their standard of living.
The benefit of all those payments is that they can be made and that there is no need for the transferor to survive 7 years after the gifts have been made.
- Where individuals are comfortable that they have sufficient assets and income to maintain their lifestyle both now and, in the future, may want to consider making lifetime gifts. Gifts that are made to another person, are viewed as a potentially exempt transfer (PET) and are exempt from tax normally if the transferor survives 7 years from the gift. Different rules apply where assets are placed in Trusts.
In considering the following investments, there is a need to accept that there is risk involved and that in some cases, they need to be retained for a few years. We recommend that when considering such investments, you “ignore” the tax benefits and consider whether you would have made the investment – if there were no tax benefits. It is also important to discuss these with your financial advisor.
Individual Savings Account (ISA)
- UK tax resident individuals may invest up to £20,000 per year in an individual savings account (“ISA”), each tax year. This can be a cash or shares or a combination. If you want to have more than one ISA a year you should take financial advice. The income and gains arising within the ISA are tax-free. There is also scope for a deceased taxpayer’s ISA accounts to be transferred to his surviving spouse if they were married or in a civil partnership.
- There is also a junior ISA for children – where investments can be cash or shares. The maximum that can be invested is £9,000 for both 2020/21 and 2021/22.
- Finally, there is a “Lifetime ISA” (LISA) for 18- to 40-year-olds. The maximum that can be invested is £4,000 a year, with the government paying in a further £1,000. Contributions can be made until you are aged 50. The funds can be used either to buy a first property (although the value of that property is restricted) or to save for retirement. The latter may be useful as it is addition to your LTA mentioned previously. This should be viewed as a long-term investment and there are adverse financial implications arising from withdrawing funds in an unauthorised manner.
Enterprise Investment Schemes (EIS)
- Individuals may claim a 30% income tax reduction by investing (for at least three years) in Enterprise Investment Scheme (EIS) shares in unquoted trading companies. Normally the maximum that can be invested is £1 million, or £2 million for investments in knowledge intensive companies.
- There is scope to carry back for one year any EIS investment, so that an investment made in 2021/22 could be claimed on your 2020/21 tax return. This equally applies to SEIS but not VCT investments.
- Any capital gain on the sale of the investments after three years is exempt from tax.
- Where an EIS investment fails, it may be possible to claim an income tax loss, rather than a capital gains loss.
Seed Enterprise Investment Scheme (SEIS)
- The Seed Enterprise Investment Scheme provides tax relief on investments in qualifying trading companies that are less than two years old. The income tax relief is 50% on investments up to a maximum of £100,000.
- Any subsequent capital gain on sale of the shares is exempt provided the shares are owned for three years.
Venture Capital Trust (VCT)
- Up to £200,000 may be invested in shares in a venture capital trust (VCT) resulting in a tax reduction at 30% of the investment.
- VCT dividends and capital gains are tax-exempt.
Social Investment Tax Relief (SITR)
- Social Investment Tax Relief (SITR) is a 30% income tax deduction for investment in social enterprises. The maximum that can be invested is £1m, but this can be carried back to the previous tax year.
- Capital Gains on sale are tax exempt. There may also be an ability to claim either an income or a capital gains tax loss, depending upon the nature of the asset on which the loss has arisen.
- The Chancellor recently announced that such investments would be able to be made up to 5 April 2023 and continue to benefit from the favourable tax treatment.
Scope to use tax efficient investments to defer capital gains on other assets
- Furthermore, capital gains on the sale of another asset can be deferred if the proceeds are reinvested in EIS, SEIS or SITR shares within a fixed timescale. Whilst individuals should bear in mind that there is a cash flow advantage, when the gain subsequently comes into charge there may be more tax payable, if capital gains tax rates have risen.
- Investor’s relief was introduced several years ago to complement BADR (mentioned above). However, now that the benefit of BADR has been reduced, this has become a more valuable relief.
- The relief is available for serial entrepreneurs who acquire ordinary shares subscribed for in either an unlisted trading company or the holding company of a trading group. Neither the investor or anyone connected with him/her can be an officer or employee of the relevant companies.
- The ordinary shares should be subscribed for on or after 17 March 2016 and need to be retained for a minimum of 3 years. If that is achieved, then any gain up to a lifetime limit of £10m, will be liable to CGT at 10%. The tax benefit is currently £1m and may increase if the relief remains unaltered and CGT rates increase.
- Non-UK domiciled individuals are eligible for the remittance basis. This will mean that normally their UK tax exposure will be limited to UK income and capital gains, together with any overseas income or gains remitted to the UK. The main exception to this is where any carried interest is received.
- In the first 7 years, there is no material cost of claiming the remittance basis, other than you lose your personal allowance and the CGT annual exemption. Once an individual has been in the UK for 8 or 12 years, then you can either pay the remittance basis charge (RBC) of £30,000 and £60,000 respectively or be taxed in the UK on your worldwide income and gains, with credit normally for any overseas taxes paid. The RBC election is made each year and the taxpayer has flexibility as to whether to pay the RBC or file on the worldwide basis.
- Those individuals who came to the UK during the tax year ended 5 April 2007 will have been in the UK for 15 years on 6 April 2021. They will therefore be viewed as deemed domiciled and so no longer able to claim the RBC and more importantly liable to all UK taxes on a worldwide basis.
- If no action has currently been taken, they may want to consider undertaking appropriate planning prior to 6 April, for example reviewing and potentially restructuring their non-UK investments.
- Non domiciled individuals who came to the UK in 2007/08 may want to review their overall affairs prior to 6 April 2022.
- Where an individual becomes deemed domiciled, any overseas income or gains that have not been taxed in the UK, are still liable to taxation if they are subsequently remitted to the UK even after they have become deemed domiciled.
- For IHT purposes, prior to becoming deemed domiciled, it is only net UK assets that are liable to tax. These benefits fall away once the individual has been resident for 15 out of 20 years and all worldwide assets become liable.
- For CGT purposes, non-domiciled individuals who are taxed on the remittance basis are not able to claim relief for any overseas capital losses. However, once they are taxed on the worldwide basis, they may want to claim the losses.
- Those individuals wishing to claim relief for overseas losses, must make the appropriate irrevocable election within 4 tax years of the first year in which the remittance basis was claimed. Therefore, those who first claimed the remittance basis in 2016/17 have until 5 April 2021 to make the election.
Individuals considering moving to the UK
- Where an individual was born in the UK and had a domicile of origin, then on their return they will be viewed as UK resident and domiciled and so taxable on their worldwide income and gains.
- Individuals who are not currently UK resident but who are contemplating moving to the UK should consider appropriate planning before their arrival.
- Such planning should ideally be undertaken during a full tax year of non-residence (e.g., implemented by 5 April 2021 if the individual plans to become resident in 2021/22). This may include considering the structuring of existing bank accounts and investments held either personally or via investment holding structures.
- Non-residents are liable to UK capital gains tax on the sale of directly owned UK residential and UK commercial property. In addition, there is a corporation tax exposure if the property is held via a property rich companies where the gross assets are 75% or more connected to UK land.
- Generally, income tax claims must (subject to exceptions) be made within four years after the end of the tax year to which the claim. Therefore, the deadline for claims with respect to the 2016/17 year will expire on 5 April 2021. Individuals may therefore wish to review whether all appropriate claims for the 2016/17 year have been made. Such claims may include claims for foreign tax credits or for loss relief.
Key UK self-assessment tax dates and deadlines for individuals
31 January 2021
- filing deadline for 2019/20 electronic returns. £100 penalty arises for individual returns not filed by this date, regardless of whether tax is due. Resulting from Covid this deadline was extended to 28 February 2021.
- payment deadline for 2019/20 tax and first payment on account for 2020/21.
- third automatic 5% late payment penalty applies to any outstanding 2018/19 tax.
28 February 2021
- first automatic 5% late payment penalty applies to outstanding 2019/20 tax. Exceptionally, HMRC have confirmed that this penalty will not be charged for 2019/20, where the individual has paid the tax or agreed a Time to Pay arrangement with HMRC by 1 April 2021.
5 April 2021
- end of 2020/21 UK tax year.
- four-year time limit expires for certain claims/elections for the 2016/17 tax year.
30 April 2021
- 2019/20 paper returns not filed by this date will be 6 months late. A further penalty of 5% of any tax due (or £300 if greater) may be payable.
- 2019/20 electronic returns not filed by this date will be 3 months late. Daily penalties may apply of £10 a day for up to 90 days.
31 July 2021
- 2020/21 second payment on account becomes due.
- 2019/20 electronic returns not filed by this date will now be six months late and a further penalty may be charged of 5% of the tax due, or £300 if greater.
1 August 2021
- the second automatic 5% late payment penalty applies to any outstanding 2019/20 tax.
5 October 2021
- deadline to notify HMRC of chargeability to tax for individuals not issued a return (or a notice to file a return) by HMRC and who have a tax liability for 2020/21.
31 October 2021
- deadline for submitting 2020/21 paper return unless there is no facility available from HMRC to file electronic tax return, in which case the deadline for a paper return is extended to 31 January 2022.
- 2019/20 paper returns not submitted by this date are now 12 months late and subject to further penalty of 5% of the tax due, or £300 if greater.
31 January 2022
- filing deadline for 2020/21 electronic returns. £100 penalty arises for individual returns not filed by this date, regardless of whether tax is due.
- payment deadline for 2020/21 tax and first payment on account for 2021/22.
- third automatic 5% late payment penalty applies to any outstanding 2019/20 tax.
Tax changes already signposted
- Making tax digital (MTD) is be introduced for income tax for accounting periods commencing on or after 6 April 2023. This will initially apply to self-employed businesses and individuals whose rental income exceeds £10,000. There will be a need to file quarterly returns and pay tax each time.
- We know that various personal tax rates and bands will be frozen after 2021/22 until the end of 2025/26. The impact will be that more taxpayers are likely to be paying more tax than they currently are, even if pay rises prove to be sluggish.
- Corporation Tax is proposed to increase to 25% from 1 April 2023. This will apply to profits exceeding £300,000. Profits below £50,000 will be taxed at 19% (unless they are received by a closely held company – where they will be taxed at 25%) There will be a tapered rate for profits between £50,001 and £299,999.
- There is a super deduction for Capital expenditure incurred by companies liable to corporation tax. The benefit applies to expenditure incurred between 1 April 2021 and 31 March 2023 and equates to a tax deduction of 130% of plant & machinery expenditure incurred (currently the relief is 18%). It is also intended that special rate pool expenditure qualifies for a 50% deduction in the year of expenditure, compared with 6% currently.
- Freeports are given an even more beneficial arrangement – namely 100% tax deduction for plant and machinery expenditure incurred between 1 April 2023 and 30 September 2026.
We trust that this will be of interest to you and if having read it there are any points that you would lie to discuss, then we would be very happy to assist you.