Autumn Budget 2021 - Update for Small Businesses

Autumn Budget 2021 - Update for Small Businesses
Photo by Katerina Kerdi / Unsplash

In this year's Autumn Budget, many of the biggest changes for small businesses had already been announced before the Chancellor's speech. Let's take a look at the 2021 Budget update for small businesses. Keep reading below or feel free to watch our short video!

Corporation Tax Changes from April 2023

The Chancellor has confirmed in his Autumn Budget announcment that the Corporation Tax rate will increase to 25% as planned. This will apply to limited companies with profits over £250,000. We were already aware of this change as it was mentioned in the Spring Budget earlier in the year.

HMRC's policy paper shows that there will be a 'small profits rate' of 19% for companies with profits of £50,000 or less. The smallest companies will be able to continue paying corporation tax at the current rate which is welcome news.

Companies with profits between £50,000 and £250,000 will receive marginal relief on the new 'main rate' of 25%. The corporation tax on these profits will increase gradually between 19% and 25%.

Corporation tax rate changes will be implemented from April 2023 based on the latest policy paper. The main rate for the year starting April 2022 will stay the same at 19%.

'Health and Social Care Levy' - An increase to National Insurance

Another update that was announced before the Autumn Budget is the 'Health and Social Care Levy'. Initially the government will increase national insurance rates by 1.25% for employees, employers and self-employed individuals from April 2022. The current main rates are below:

  • Class 1 (Employee's NIC) - 12% on income between £9,568 and £50,270, 2% thereafter
  • Class 1 (Employer's NIC) - 13.8% on salary over £8,840 per year or £737 monthly
  • Class 4 (Self-employed NIC) - 9% on profits between £9,568 and £50,270, 2% thereafter

Once the new tax year begins in 2022, each rate will be increased by 1.25%. Class 2 (£3.05 weekly for sole traders in 2021) and Class 3 (voluntary contributions) national insurances will remain unaffected. Those over state pension age will not see a national insurance increase until the 'Health and Social Care Levy' is implemented as a standalone PAYE deduction from April 2023.

Feel free to review HMRC's policy paper for full details.

Making Tax Digital: Income Tax and Self-asessment (ITSA)

As part of the Autumn Budget, the Chancellor announced changes to the basis period for those who are self-employed. The 'accounting period' for individual businesses will instead be in line with the tax year starting 6th April and ending on the following 5th April.

In HMRC's draft policy paper, the 'tax year basis' will come into effect from 2023 to 2024. There is due to be a transitional period from 2022 to 2023 where all outstanding overlap relief would be given to make future returns more straightforward to complete.

So what does this all actually mean? Making Tax Digital: ITSA is on the way and will likely be released in the year after the 'tax year basis' is fully implemented.

HMRC's estimated start date is currently April 2024. This will impact any self-employed individuals and anyone earning property income over £10,000. The threshold is based on gross earnings (not profits) so it will impact a significant number of individuals.

Quarterly submissions will need to be made to HMRC once MTD: ITSA is mandated. The submissions will report summaries of self-employed/property income through compliant software. According to the government, the payment deadlines will be the same as they are now.

General partnerships will need to comply with Making Tax Digital: ITSA one year later from April 2025. The start date for other partnerships is yet to be announced, but would likely be after April 2025.

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