Pre Year End Tax Planning
Posted 12/03/2021
NMW & Employment Allowance
- National minimum wage rates from 1st April 2021
| Age of Worker | Rate per Hour |
| Age 23+ | £8.91 |
| 21 and 22 | £8.36 |
| 18-20 | £6.56 |
| Under 18 | £4.62 |
| Apprentice | £4.30 |
- Beware of traps for employees getting older, they need to be moved up the scale
- Don’t forget the employment allowance up to £4,000 which is deducted from employer NIC
- Doesn’t apply for sole director payrolls
- Only for small companies where employer NIC liability is less than £100,000
- Only 1 amount for connected companies or companies under common control
Personal Tax 2021/22
Rates
£12,570 Personal allowance
- £37,700 Basic rate band
- £50,270 Total income before higher rate tax
Marriage allowance
- Marriage allowance transfer lets you transfer £1,250 of personal allowance to spouse/civil partner. Only where transferor has income below £12,500. Transferee must be a basic rate tax payer
- Can claim for 2 years after the end of the tax year. 2018/19 (be quick) and 2019/20 still open
Dividends
- No changes in the Budget to the dividend tax rates, maybe in the Autumn
| Dividend Tax Rate | |
| Dividend allowance £2,000 | 0% |
| Basic rate band | 7.5% |
| High rate | 32.5% |
| Additional rate | 38.1% |
- Still vote the dividends and credit to Directors Loan Account, even if the cash flow is not available, must have the reserves to vote the dividends though
Director’s Remuneration
- Still more tax efficient to operate a ‘small’ salary and dividends
- Some Directors are not entitled to claim furlough which has resulted in overdrawn loan accounts
Overdrawn loans
- Clear with dividends, but must have reserves
- Pay s455 tax? 32.5% on balance not cleared within 9 months of end of accounting period
- No profits – declare a bonus – within 9 months for Corporation tax relief
Benefit in kind loans
- No benefit in kind where loan does not exceed £10,000
- Where loan exceeds £10,000, HMRC official rate of interest is applied – 2.25%
Use Your Tax-Free Pension Allowance
- The standard annual pension allowance is 100% of earned income or £40,000, whichever is higher
- This is restricted if your income exceeds £150,000
- If you are a higher-rate or additional rate taxpayer you can claim extra tax relief
- You can also carry forward any unused annual allowance from the three previous tax years
- The 2020/21 lifetime allowance is £1,073,100
Trivial Benefits in Kind
- Tax free trivial benefits in kind can be provided to an employee
- Cannot be cash or a cash voucher
- Must be less than £50
- Not contractual or salary sacrifice
- Must not be for the recognition of past or future service
- Annual limit £300
Tax free Benefits in Kind
- Working from home exemption increased from £4 per week to £6 per week from 6th April 2021
- For 2020/21 only, this can be claimed online providing you don’t complete a tax return
- For Government Guidance see https://www.gov.uk/tax-relief-for-employees/working-at-home
| Tax free benefits | Tax free benefits |
| Mobile phone provided (contract in company name) | Christmas or annual party (up to £150) |
| Workplace parking | Health screening assessment |
| Childcare vouchers | Pensions advice up to £500 pa |
| Interest free loans up to £10,000 | Long service awards |
| Staff training | Meals in staff canteen |
| Relocation costs up to £8,000 | Counselling |
| Mileage claims at HMRC’s approved rates (45p first 10,000 miles, 25p thereafter) | Job related training |
Company Car Tax
Cars registered before 6 April 2020
| CO2 g/km | 0% range (miles) | % of list price |
| 0 | n/a | 1% |
| 1-50g | >130 miles | 2% |
| 70-129 miles | 5% | |
| 40-69 miles | 8% | |
| 30-39 miles | 12% | |
| <30 miles | 14% | |
| 51-54g | n/a | 15% |
| Then each 5g | +1% | |
| Maximum at 160g+ | 37% |
Cars registered on/after 6 April 2020
| CO2 g/km | 0% range (miles) | % of list price |
| 0 | n/a | 1% |
| 1-50g | >130 miles | 1% |
| 70-129 miles | 4% | |
| 40-69 miles | 7% | |
| 30-39 miles | 11% | |
| <30 miles | 13% | |
| 51-54g | n/a | 14% |
| Then each 5g | +1% | |
| Maximum at 165g+ | 37% |
Worldwide Harmonised Light Vehicle Test Procedure to be used as a measure of emissions for cars registered on or after 6 April 2020
Vans
- 2021/22 van benefit in kind rate £3,500 unless there is insignificant private use (HMRC’s example is taking a mattress to the tip)
- Nil benefit in kind for zero emission vans
Private fuel
- Van fuel benefit in kind £696
- Car fuel benefit in kind is £24,600 x % based on C02 emissions
Electric
- Very low rates of BIK for electric & hybrid cars
Capital Allowances – Cars
100% First Year Allowances for Cars
- 100% FYA for cars was due to expire in April 2021 but extended to 2025 but only for 0g/km emission cars
- Cars emitting no more than 50g/km will go into the main capital allowances pool and receive writing down allowances at 18% per annum
- Cars emitting more than 51g/km
- Car leases – 15% added back for corporation tax where C02 emissions are more than 50g/km
Capital Allowances – Plant & Machinery
Annual Investment Allowance
- Remains at £1million on qualifying plant & machinery expenditure to 31 December 2021 then back down to £200,000
- Timing of expenditure – make sure incurred before the end of your financial year rather than start of the new financial year
- Writing down allowances – 18% and 6%
Super Deduction
- 130% deduction for plant & machinery expenditure incurred for 2 years between 1 April 2021 and 31 March 2023
- Special Rate Pool Assets have 50% FYA, then normal 6% writing down allowances
- Excludes cars
Seems to be for companies only
Corporation Tax
- Budget announcement of a 6% increase in corporation tax rates from 19% to 25% from 1 April 2023
- Only for companies with profits exceeding £250,000
- Remains at 19% for small companies with profits below £50,000
- Hybrid rate of 26.5% for profits between £50,000 and £250,000
- 19% doesn’t apply to close investment holding companies
- Thresholds must be dividends by the number of companies under common control
Trading Loss Carry Back
- Temporary extension to the trading loss carry back rules
- Currently only 1 year carry back
- Extended to 3 years
- Applies for companies for accounting periods between 1 April 2021 and 31 March 2022
- Applies for unincorporated entities for 2020/21 and 2021/22 tax years
Capital Gains Tax
- Annual Exemption remains at £12,300
- No changes to Business Asset Disposal Relief (previously Entrepreneur’s Relief)
- Remains at 10% for £1 million qualifying gains meeting the qualifying conditions
- 30 day CGT reporting & payment for residential property disposals. Hammond McNulty can help you with this. Notify us when an offer is accepted
CGT rates
| Basic rate | Higher rate | |
| Residential | 18% | 28% |
| Non residential | 10% | 20% |
IR35
- Reforms apply from 6 April 2021 to medium & large sized companies within private sector
- Assessment responsibility moves from contractor/PSC to end-user (fee payer)
- If IR35 applies, end-user must operate PAYE/NIC
- Current rules for small private sector end-users whereby the contractor/PSC will remain responsible for determining whether IR35 applies and end user still pays the PSC gross
R&D
- SME tax credit 230% relief
- Where this creates a loss, 14.5% refund can be obtained as a tax credit
- Budget proposal was to limit the refund for year to a maximum of £20,000 plus 3 times PAYE/NIC liability. Restriction starts on 1 April 2021
VAT
- VAT registration threshold remained at £85,000
- Making Tax Digital applies to all businesses from 1 April 2022
- VAT reduced rate of 5% for hospitality, holiday accommodation & attractions until 30 September 2021
- New rate of 12.5% from 1 October 2021 to 31 March 2022
- 20% from 1 April 2022
VAT deferral
- VAT originally deferred for 20 March – 30 June 2020 deferred to 31 March 2021 can be paid over 11 monthly instalments, interest free
- New online opt in process opened
SDLT
- The Nil rate band will continue to be £500,000 for the period to 30 June 2021
- From 1 July 2021 until 30 September 2021, the nil rate band will be £250,000
- 1 October 2021 sees the return of the standard nil rate band of £125,000
Other Budget Announcements
- New recovery loans for £25k – £10m – 80% guaranteed by the Government
- Restart grants of between £6,000 and £18,000 for those with premises (remember the grants are taxable).
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