The new Financial Year commenced last month on 1 April, and 6 April 2021 saw the beginning of the new Tax Year 2021/22, both of which brought several significant tax and related changes. We highlight just some of these below. More information on each is available on GOV.UK.

IR35 extension of off-payroll working rules to the private sector

The extension of the off-payroll working rules to the private sector commenced on 6 April 2021, having been delayed from April 2020. This means that medium or large-sized private sector businesses are now responsible for deciding the employment status of contractors which means paying tax and NIC as if they were an employee instead of a contractor.

Broadly, an exemption is only available from these rules if the business meets two or more of the following conditions:

• annual turnover of less than £10.2 million; or
• balance sheet total (gross assets) less than £5.1 million; or
• less than 50 employees.

Businesses should therefore have been assessing the different contractual relationships they hold, including those directly with Person Service Companies, or, with agencies or other service providers in the context of the rules.

“Super-deduction” for plant and machinery

From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets are able to claim:

• a 130 percent super-deduction capital allowance on qualifying plant and machinery investments; and
• a 50 percent first-year allowance for qualifying special rate assets.

The 130 percent super-deduction allows companies to cut their tax bill by up to 24.7p for every £1 they invest.

These reliefs are not available to unincorporated businesses. However such businesses can still take advantage of the extension of the £1 million annual investment allowance limit announced in November 2020 which will remain at this level until the end of 2021 (the limit was due to fall back to £200,000 from 1 January 2021).

Used and second-hand assets do not qualify nor does expenditure on contracts entered into prior to 3 March 2021 even if expenditure is incurred after 1 April 2021. Plant and machinery expenditure incurred under a hire purchase or similar contract must meet additional conditions to qualify.

The rate of the super-deduction will require apportioning if a company’s accounting period straddles 1 April 2023. The rate should be apportioned based on days falling prior to 1 April 2023 over the total days in the accounting period.

More details of the measure together with draft legislation are available.

SDLT surcharge for non-residents

From 1 April 2021, a SDLT 2 percent surcharge applies to purchases of residential property in England and Northern Ireland by anyone who is not resident in the UK. The new rates will be 2 percentage points higher than those that apply to purchases made by UK residents, and will apply to purchases of both freehold and leasehold property as well as increasing SDLT payable on the grant of a new lease.

Buyers must apply the following SDLT residence tests to determine if they’re a non-UK resident for these purposes:

• Individual buyers will be non-UK resident if they are not present in the UK for at least 183 days during the 12-months before their purchase;
• Corporate buyers will be non-UK resident if they are not UK resident for corporation tax purposes at the date of buying the residential property. However, special rules will apply for UK resident companies which are under the direct or indirect control of non-UK resident persons;
• Partners in a business partnership buying a residential property together will be treated as joint buyers;
• Trusts will be non-UK resident if any trustee is a non-UK resident under the SDLT residence tests – except if:
  • if the trust is a bare trust; or
  • if any beneficiary is entitled to remain in the property for life or entitled to income arising from the purchased property.

Residence status under the UK Statutory Residence Test is therefore not relevant for this purpose.

Partners in a business partnership buying a residential property together will be treated as joint buyers and if any partner is non-UK resident the new rates will apply.

Individual buyers may be able to claim a tax refund if, after the purchase, they are present in the UK for at least 183 days in the two year period beginning a year before the purchase and ending a year after the purchase. Also, if they’re a crown employee and/or their spouse or civil partner is one, they’ll be able to claim an up-front relief from this tax charge.

HMRC has recently advised us that the higher zero percent threshold for SDLT on residential property due to COVID-19 should also be considered in the context of this surcharge. We have asked HMRC to update their guidance accordingly as it is currently not clear that the 2 percent threshold is available on consideration up to £500,000 and not £125,000.

Making Tax Digital for VAT

Readers are reminded that the digital links soft landing period for Making Tax Digital for VAT ended on 1 April 2021 after its extension from 1 April 2020 due to the pandemic. More information is available in the VAT Notice.

R&D tax relief

For accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D tax credit that a company can receive in any one year is now capped at £20,000 plus three times the company’s total PAYE and NICs liability.

Miscellaneous other changes

From 6 April 2021, the income tax personal allowance (which applies across the UK) and the higher rate thresholds (“HRT”) increased to £12,570 and £50,270, respectively. The HRT for savings and dividend income applies UK-wide. The HRT for non-savings and non-dividend income applies to taxpayers in England, Wales, and Northern Ireland.

As previously announced and legislated for in February 2021, from 6 April 2021 the national insurance contributions primary threshold/lower profits limit increased to £9,568 and the upper earnings limit/upper profits limit increased to £50,270.

National Minimum Wage and Living Wage changes

The National Minimum Wage rates increased on 1 April 2021. In addition to the new rates, the age from which workers become eligible for the National Living Wage was lowered to age 23.