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Updates for Businesses: 15th November 2021
This update discusses the rise to National Insurance and taxes, as well as HMRC's guidance on the super-deduction for new equipment.
National Insurance and Taxes Are Going Up
National insurance contributions (NICs) paid by both employed and self-employed workers will rise by 1.25% in a bid to help fund health and social care costs.
From 2023, the health and social care levy element will then be separated out and the exact amount employees pay will be visible on their pay slips. It will be paid by all working adults, including workers over the state pension age – unlike other NICs. This means an employed basic rate taxpayer earning £24,100 a year would contribute an extra £180, while a higher rate taxpayer earning the median higher rate taxpayer’s income of £67,100 a year would pay £715.
In the March Budget there were minor increases to the £12,500 - and £50,000 - income tax thresholds to £12,570 and £50,270 respectively but these are frozen until 2026. These thresholds – which determine how much a person can earn before paying income tax, and who will pay at the higher 40% rate – usually rise with inflation, now they will not. So, we could all be paying more tax over the next 5 years.
All these increases add up to increased pressure on the family budget with higher prices and more taxes. Wages may be on the up – but probably not by enough to compensate for the added costs and tax rises.
Please talk to us about planning ahead because with some help you may be able to make your money work harder for you and reduce the amount the taxman can take.
Your financial plans may need a fresh look, and you may need an expert to help you. We are ready to provide all the help you need!
HMRC Issue Detailed Guidance on the Super-Deduction for New Equipment
Finance Act 2021 legislated for the temporary 130% super-deduction for companies acquiring new plant and machinery announced in the Spring 2021 Budget. This applies where the expenditure is incurred between 1st April 2021 and 31st March 2023.
This means that a new machine that cost £100,000 will reduce the company’s profits for corporation tax purposes by £130,000, saving £24,700 in corporation tax (at 19%). However, there is a clawback charge when the specific asset is disposed of as it needs to be separately identified and not pooled.
The 130% allowance is available where the equipment would normally be included in the general plant and machinery pool. Where the equipment would normally be included in the special rate pool, typically integral features such as air conditioning units, then a 50% allowance is available.
The HMRC guidance sets out detailed conditions for claiming the new tax relief and clarifies that the super-deduction does not apply to motor cars and leasing business among other exclusions.
Where equipment such as lifts, heating systems and air conditioning is installed in a building that is rented out the leasing restriction does not apply.
Note also that there is the 100% Annual Investment Allowance for up to £1 million of expenditure per annum. This was due to revert to just £200,000 from 1st January 2022 but was extended to 31st March 2023 in the Autumn 2021 Budget.
Click here to read more.
Please note that this update is correct as of the 15th November 2021. If you want to discuss any of these topics with us, please don't hesitate to get in contact.