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What's changing for small businesses in the 2021/22 tax year?

A new tax year is starting on 6th April, which means many of the changes announced in recent Budgets will come into effect. Before the 2021/22 tax year kicks off, here’s a roundup of some of the key changes for small businesses.

Construction Industry Scheme (CIS) updates

If you’re a VAT-registered contractor or subcontractor in the construction industry, you should be aware of new legislation that was introduced on 1st March 2021. VAT-registered contractors must now apply the domestic VAT reverse charge on qualifying services supplied by VAT-registered subcontractors.

Find out how FreeAgent handles the domestic VAT reverse charge for subcontractors and contractors.

IR35 in the private sector

If you’re a freelancer working with clients in the private sector, then until 6th April 2021 you can decide whether your projects fall within IR35.

This will change in the new tax year, however, when clients that are medium or large-sized businesses will have to make that decision. These clients will have to notify you of their decision, and if your work for them does fall within IR35, they will have to collect tax and NationaI Insurance from the money they pay you.

Tax and National Insurance rates and bands

Here are the changes that will come into effect in April 2021:

National Minimum Wage and National Living Wage

Changes will come into effect on 1st April. Note the different age bands for rates in 2021/22.

2021/22 2020/21
Employees aged under 18: NMW £4.62 £4.55
Employees aged 18-20: NMW £6.56 £6.45
Employees aged 23 and over: NLW £8.91 N/A
Employees aged 25 and over: NLW N/A £8.72
Employees aged 21-24: NMW N/A £8.20
Employees aged 21-22: NMW £8.36 N/A

England, Northern Ireland and Wales

Changes will come into effect on 6th April 2021.

2021/22 2020/21
Personal allowance £12,570 £12,500
Employee’s NI becomes due at £9,568 £9,500
Employer’s NI becomes due at £8,840 £8,788
Higher rate tax becomes due at £50,270 £50,000
Class 2 NI becomes due when profits exceed £6,515 £6,475
Class 2 NI per week £3.05 £3.05
Class 4 NI becomes due when profits exceed £9,568 £9,500

Scottish tax rates and bands

Changes will come into effect on 6th April 2021.

2021/22 2020/21
Personal allowance £0 - £12,570 £0 - £12,500
Starter rate 19% £12,571 - £14,667 £12,501 - £14,585
Basic rate 20% £14,668 - £25,296 £14,586 - £25,158
Intermediate rate 21% £25,297 - £43,662 £25,159 - £43,430
Higher rate 41% £43,663 - £150,000 £43,431 - £150,000
Top rate 46% Over £150,000 Over £150,000

Student Loan repayment thresholds and new Scottish student loan plan

Changes will come into effect on 6th April 2021.

2021/22 2020/21
Undergraduate loan: plan 1 £19,895 £19,390
Undergraduate loan: plan 2 £27,295 £26,575
Scottish student loan: plan 4 £25,000 N/A
Postgraduate loan £21,000 £21,000

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