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The Financial Tax Year – UK Laws and Regulations (HMRC)

Apr 15, 2022 | UK Accounting

COVID-19 caused the government of the UK to take on a set of measures to reduce the negative impact of border closures and social distancing measures on businesses. However, there are some notable changes to the budget that include cooperation tax, personal allowances and incentives for green packaging that stand out from the Fiscal bill for your financial tax year. In this article, we look at the different laws and legislation that have been passed in the last financial year, which is April 6th 2020 – April 5th 2021. This article equally looks at ten changes to the Fiscal tax bill that has an impact on businesses across the UK.

financial tax year
The Financial Tax Year - UK Laws and Regulations (HMRC) 4

The Personal Allowance Limit

The government will increase the personal expenditure allowance in line with the rate of inflation for 2021 and 2022. As a result, the personal allowance will increase to £12,570, while the basic limit rate is set at £37,700 for 2021 and 2022.

Similarly, the higher threshold for the personal allowance will increase to £50,270 for 2021 – 2022. 

Upper Earnings Limit and Upper Profits for the national insurance contribution will be aligned to the higher threshold at £50, 270. These changes are applicable across the UK and will positively impact the disposable income of consumers. 

The Standard Lifetime Allowance 

In the 2021 Finance bill, legislation will equally be introduced in order to remove links to the Consumer Price Index for the next five fiscal years. This leaves the standard lifetime allowance at £1,073,100 for the tax years 2021 – 2026. 

Inheritance tax nil-rate band and residence nil-rate band

The inheritance tax nil-rate bands will remain at current levels until April 2026, following a bill to amend the current Finance bill. The nil-band rate is £325,000, while the resident band rate stays at £175,000.

As a result of this, qualifying estates will continue to transfer £500,000 to spouses or civil partners and avoid a tax on £1 million inheritance from April 6th 2021, until April 5th 2026. 

Financial Tax Year: Capital Gains Tax Annual Exempt Amount (AEA)

The government will introduce legislation in Finance Bill 2021 that maintains the current Capital Gains Tax annual exempt amount of £12,300 for individuals.

This was equally maintained at £6,150 for trustees of most settlements for the tax years until 2025 to 2026, as announced in Budget and will go into effect on April 6, 2021.

SG Pix 37 The Financial Tax Year - UK Laws and Regulations (HMRC)
The Financial Tax Year - UK Laws and Regulations (HMRC) 5

Corporation tax: Main Rate

The financial year beginning 1 April 2022 saw the introduction of legislation that set the main rate of corporation tax at 19 per cent. A bill will be introduced in order to raise the corporation tax rate to 25 per cent for the tax year beginning 1st April 2023. 

Corporation tax: Small Profits Rate

The government would impose a small profits rate of 19 percent for the financial year April 2023. The small profits rate will be applied to £50,000 or less of profits.

Companies having profits of £50,000 to £250,000 will be taxed at the standard rate of 25 percent, but may be eligible for marginal relief.

There are a few cases where this rate may be marginally lower, so not all businesses will be subject to paying a huge portion of their earnings. 

Temporary Extension of Carry Back of Trading Losses

The government will act in Finance Bill 2021, as indicated in Budget 2021, to temporarily extend the period for incorporated and unincorporated firms to carry back trading losses from one year to three years.

Unincorporated companies will be able to carry forward up to £2,000,000 in unused trading losses from the tax years 2020 – 2021 and 2021 – 2022.

The £2,000,000 maximum will be subject to a group-level limit, requiring groups with firms capable of carrying back losses in excess of £200,000 to divide the cap among their companies.

In due course, more information on the group limit will be released.

Capital Allowances: Super-deduction and 50% first-year allowances

Investments in main-rate assets will be lowered by a 130 percent super-deduction, while investments in special-rate assets will benefit from a 50 percent first-year allowance under this plan.

These measures will be included in addition to any necessary amendments to the Capital Allowances Act 2001.

Indirect Tax: VAT reduced rate for tourism and hospitality

The government has decided to extend the temporarily lower VAT rate of 5% for hotels, vacation rentals, and attractions until September 30, 2021.

Following that, on October 1, 2021, a new reduced rate of 12.5 per cent will be implemented, which will last until March 31, 2022, when it will revert to the usual rate.

SG Pix 38 The Financial Tax Year - UK Laws and Regulations (HMRC)
The Financial Tax Year - UK Laws and Regulations (HMRC) 6

Plastic Packaging Tax

The government will implement a new Plastic Packaging Tax on April 1, 2022, as stated in Budget 2018 and confirmed in Budget 2020, with basic legislation introduced in Finance Bill 2021.

The tariff will encourage the use of recycled plastic in packaging rather than normal plastic packaging.

The tax will be levied at a rate of £200 per tonne of plastic packaging that contains less than 30 per cent recycled plastic material, according to Budget 2020.

Following a technical consultation, some changes to the draft legislation have been made to improve clarity in response to stakeholder feedback.

Read this blog to know more about VAT Accounts: VAT Accouhttps://sterlinxglobal.com/what-a-vat-account-should-look-like/nt: Rules of what a VAT account should look like.

Higher Diverted Profits Tax

From 2023, the rate of Diverted Profits Tax will be raised from 25 percent to 31 percent. When the main rate of corporation tax rises to 25 percent for the fiscal year beginning April 1, 2023, this will preserve the present gap of 6 percent.

Frequently Asked Questions

  • Can I Carry Forward my Trade Losses from COVID-19?

    Unincorporated enterprises will be able to carry forward up to £2,000,000 in unused trading losses from the tax years 2020 to 2021 and 2021 to 2022. This covers the COVID-19 years and will enable businesses to recover some losses. 

  • How to Claim a Tax Refund?

    You may be able to claim a tax refund from your current or previous job, foreign income and fuel costs or working clothes for your job. In order to claim a tax return, click on this link which will enable you to claim on the HMRC website. 

  • Can I access COVID-19 support?

    If you are a business that is registered in the UK, you can benefit from COVID-19 support. In order to do this, you can click here, and HMRC will provide you with all the relevant information. However, the complex nature of this regulation will require a professional to assist you. 

    Disclaimer: The data above was taken from the most trusted sites such as .gov.uk. If any of the changes appear once after we have published the article, please refer to the .gov.uk site for more information.

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