THREE YEAR CARRY BACK OF TRADING LOSSES
Many businesses will have made a loss in the last year as a result of the Coronavirus pandemic and the difficult trading environment. Trading losses can normally only be set against profits of the preceding accounting period or previous tax year in the case of unincorporated businesses. The chancellor has announced that the carryback period will be temporarily increased to three years thereby enabling the business to obtain a tax refund. For companies, this will apply to loss-making accounting periods ending in the period 1 April 2020 to 31 March 2022.
For unincorporated traders, the extended loss relief will apply to losses incurred in 2020/21 and 2021/22. The amount of trading losses that can be carried back to the preceding year remains unlimited for companies. After carry back to the preceding year, a maximum of £2,000,000 of unused losses will then be available for carryback against profits of the same trade of the previous 2 years. There will be a similar £2,000,000 limit for unincorporated businesses.
INCOME TAX RATES
The Scottish Income tax rates for 2021/22 were previously announced in the Scottish Budget.
Starter rate from £12,570 – £14,667 19%
Scottish basic rate from £14,667 – £25,296 20%
Intermediate rate from £25,296 – £43,662 21%
Higher rate from £43,662 – £150,000 41%
Top rate over £150,000 46%
The personal allowance has been increased in line with inflation to £12,570 for 2021/22. This threshold will be frozen until 2025/26.
There had again been rumours that the dividend rate might be increased, but dividends continue to be taxed at 7.5%, 32.5% and then 38.1%, depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate band. Note that the first £2,000 of dividend income continues to be tax-free.
NATIONAL INSURANCE RATES
The national insurance contribution (NIC) rates and bandings were announced on 16 December 2020 to take effect from 6 April 2021. Employees and the self-employed will not pay national insurance contributions (NIC) on the first £9,570 of earnings for 2021/22, an increase of £1 a week. The employee contribution rate continues to be 12% up to the Upper Earnings limit of £50,270, with the self-employed paying 9% on their profits up to the same level. Note that employer contributions will apply to earnings over £170 per week, £8,840 per annum which is also a £1 a week increase.
5% VAT RATE FOR FOOD, ATTRACTIONS AND ACCOMMODATION EXTENDED
In order to continue to support businesses and jobs in the hospitality sector, the reduced 5% rate of VAT will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK until 30 September 2021.
The 5% reduced rate of VAT will also continue to apply to supplies of accommodation and admission to attractions across the UK. From 1 October until 31 March 2022 the rate will be set at 12.5% and will then revert to 20% from 1 April 2022.
VAT REGISTRATION LIMIT FROZEN AT £85,000 UNTIL 1 APRIL 2024
The VAT registration limit normally goes up each year in line with inflation but will remain at £85,000 for a further two years. Arguably this makes it easier for businesses to assess whether or not they are required to register for VAT as it is no longer a moving target.
MAKING TAX DIGITAL EXTENDED TO ALL VAT REGISTERED BUSINESSES FROM 1 APRIL 2022
The government has confirmed that the requirement to maintain accounting records in a digital format and submit the data to HMRC electronically will be extended to all VAT registered businesses from 1 April 2022 regardless of the level of taxable supplies.
NEW RECOVERY LOAN SCHEME
The government have already announced a longer repayment period for “Bounce-back” and CBIL loans. From 6 April 2021, a new Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million to give them confidence in continuing to provide finance to UK businesses. The scheme will be open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes.
Please contact a member of our team if you would like to discuss any of the issues raised.
Call: 0131 440 1373 Email: mail@jamesandersonca.co.uk