There is lots going on in the world of tax and as expected there are going to be some increases heading our way. Here’s a reminder of what to expect:
Super deduction
From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim a 130% super-deduction capital allowance on their investment in those assets. The 130% super-deduction for qualifying items will allow companies to cut their tax bill by 24.7p for every £1 spent for the relevant period, even though the corporation tax rate remains at 19%.
Used or second-hand assets will be excluded from the relief as will expenditure on contracts entered into prior to 3 March 2021, even if the expenditure is incurred after 1 April 2021.
Corporation tax
The corporation rate will increase from 19% to 25% with effect from April 2023 for companies with taxable profits over £250,000.
Many small companies will continue to pay tax at 19% where annual profits are below £50,000.
For those companies with profits between £50,000 and £250,000 the first £50,000 will be taxed at 19% and the profits over and above £50,000 will be taxed at a marginal rate of 26.5%, which will give an effective tax rate of between 19% and 25%.
Personal allowance
The other main tax increase that was announced in March is the freezing of personal tax thresholds until 2026, but this stealth tax raising measure has been deferred until April 2022.
New social care levy
As announced in early September, the government plan to create a new social care levy. To fund this, national insurance contributions are to increase by an additional 1.25% with effect from 6 April 2022. This will apply to class 1 and class 4 NIC which includes employees, employers and the self employed.
Also announced was an increase in dividend tax rates (also an additional 1.25%). This feels particularly harsh given small owner managed limited companies who remunerate themselves via salary and dividends, such as dental associates operating through a company, were some of the few businesses not to qualify for any government funding during the pandemic.
Autumn Budget
Rishi Sunak delivered his 3rd Budget speech on Wednesday 27 October 2021, which contained a wide range of favourable announcements for both businesses and individuals.
