Budget 2021

The UK government announced at the Budget 2021 the following subject matters and will legislate them in Finance Bill 2021.

Corporation tax

The corporation tax rate remains at 19% from 1 April 2022 and the rate will increase to 25% from 1 April 2023.

Coronavirus Job Support Scheme

The Coronavirus Job support Scheme is extended to 30 September 2021 across the UK.

Self Employment Income Support Scheme

The self-employment income support scheme is extended to 30 September 2021. People who have filed their self-assessment return in 2019/2020 may be able to claim for the first time.

One-off cash grants of £18,000

A new restart grants for hospitality, accommodation, leisure, personal care and gym businesses in England. If your business falls into these sectors you may entitle to the one-off cash grants of £18,000.

VAT cut for some businesses

VAT to 5% for hospitality, accommodation and attractions is extended to 30 September 2021 thereafter the rate will increase to 12.5% till 31 March 2022.

Statutory Sick Pay (SSP)

If your business have paid staff for self isolating or sick during this pandemic, you can claim the statutory sick pay up to two weeks from the UK government.

Property tax – stamp duty

The stamp duty land tax temporary relief is extended to 30 June 2021. First-time buyers continue to enjoy the tax-free amount of up to £500,000 on a property purchase cost.

The Budget 2021 have been very helpful to help UK businesses to bounce back from this pandemic.

Sign up for Making Tax Digital (MTD)

HMRC requires all VAT registered businesses to sign up for Making Tax Digital (MTD) by April 2022. Businesses making sales of more than £85,000 should already be adopting the MTD rules.

After you enrolled to the MTD programme, your business must do the following:

  • Sign up to MTD and follow the rules.
  • Keep digital records
  • Submit your VAT returns using MTD compatible software.

For businesses with sales below £85,000 have the option to sign up for the MTD programme voluntarily before April 2022. However, even if your business is not yet signed up for Making Tax Digital (MTD) programme, you are required to use MTD compatible software to file your VAT returns from 8 April 2021.

After this date, HMRC will no longer accept VAT returns submission using EXtensible Markup Language (XML) software. The reason for this change is that HMRC is migrating to a new IT system as part of their digital transformation and this new IT system does not accept XML VAT returns submissions.

Submit your VAT returns using Making Tax Digital (MTD) compatible software

If you do not yet sign up for Making Tax Digital (MTD) after April 2021, you can use the HMRC Business Tax Account to submit your VAT returns.

You would require your Government Gateway user ID and password you created when you first registered a business tax to login into your HMRC Business Tax Account.

Alternatively, you may appoint an accountant to submit your VAT returns for you.

Software providers

HMRC has communicated with all software providers that provide XML submission platform for this change and your software provider would communicate with you what are their plan on this migration.

Surcharges and penalties for non compliance with MTD rules

HMRC will issue surcharges and penalties if your business failed to comply with the Making Tax Digital for VAT rules. For example, if you do not use your HMRC Business Tax Account to submit your VAT return and you send in a paper VAT return to HMRC, you will get £400 penalty.

Click here for more information about MTD surcharges and penalties.

Besides, making sure your VAT registered business comply with MTD rules, if your business is a limited company, make sure your confirmation statement and company accounts are submitted by the deadlines to Companies House to avoid a late filing penalty.

Dividend from small company

Many entrepreneurs set up a limited company for business because it is easy, quick and affordable to incorporate a limited company in the UK. One of the ways they can withdraw money from their companies is through dividends payments. You must declare the dividend from your small company in your self-assessment return.

Before declaring your dividend

Generally, you can only declare a dividend from your small company when you have sufficient profits available for distribution after paying corporation tax.

You will include the dividend declared in your company’s profit and loss account and also in your balance sheet as the dividend payable if the dividend will be paid after the accounting year ended.

Dividend Received

For example, you are the sole director and shareholder of your limited company. Your company made a profit of £100,000 before corporation tax and after your director’s salaries a total of £50,000. The corporation tax rate is 20%. You would like to withdraw £8,000 from your company.

Profit and loss account2021
Profit before tax£100,000
Less: corporation tax @ 20%(£20,000)
Profit after tax£80,000

In this instance, you can pay yourself a dividend of £8,000. Correspondingly, you must declare this dividend received from your limited company in your self-assessment return. You must register with HM Revenue and Customs to get your Unique Tax Reference (UTR) number for filing your self-assessment return.

Dividend allowance

The great news you do not pay tax on the full amount of dividend of £8,000 received. The UK government is kind, understanding and generous to the taxpayers.

Tax yearDividend allowance
6 April 2020 to 5 April 2021£2,000
6 April 2019 to 5 April 2020£2,000
6 April 2018 to 5 April 2019£2,000
6 April 2017 to 5 April 2018£5,000
6 April 2016 to 5 April 2017£5,000
Source: GOV.UK

Tax on dividend

Your company do not pay tax on the dividend you received but you do. The tax you must pay on your dividend received is depending on your total earned income for the tax year and your income tax band. Please note that the income tax band is different from the dividend tax band.

Dividend tax bandTax rate
Basic rate7.5%
Higher rate32.5%
Additional rate38.1%
source: GOV.UK

Calculate tax on dividend

Salary£50,000
Dividend received£8,000
Total earned income for the tax year£58,000
Less: Personal allowance for 2020/2021(£12,500)
Taxable income£45,500
Tax on:
Salary at the basic rate of 20% (£45,500 – £8,000)£7,500
Dividend at the basic rate of 7.5% (£8,000 – £2,000)£450
Total tax bill£7,950

Confirmation statement

Another important document you must prepare for your company is your confirmation statement at least once every 12 months and submit it to Companies House. Failed to file this document may result in your company being struck off the Companies House register.

If you require help with your company accounts and your self-assessment return and confirmation statement filings, please contact our accountants and they will be more than happy to help you.

VAT registration requirements

All businesses trades within and/or with the UK must follow the VAT registration requirements. Value Added Tax (VAT) stands for Value Added Tax. You must register for VAT with HM revenue and Customs if your annual sales exceed the VAT registration thresholds.

VAT registration thresholds in the UK

Below is the VAT registration requirements and threshold with effect from 1 April 2017.

scenarioAnnual sales threshold
1VAT registration£85,000 and more
2Distance selling into the UK registration£70,000 and more
3Bringing goods into the UK from the EU£85,000 and more
4VAT deregistration£83,000 and less
5To complete the simplified EC Sales list£106,500 or less & supplies to EU countries is less than £11,000
source: GOV.UK

Post VAT registration requirements

Once your business – a sole proprietorship or partnership or your company is successfully registered for VAT in the UK, HMRC will issue a VAT certificate to your business. In the VAT certificate, you will see your default VAT return quarter end date. Usually, it is a standard 3 months per quarter period. For example, if HMRC states your VAT return quarter end date is 31 March then you would have one month and 7 days to submit VAT return for 1 Jan to 31 March to HMRC.

You may apply to HMRC to change your VAT return quarter end date. For example, you can apply to join VAT annual accounting scheme if your sales are less than £1.35 million or less per year. Once you joined the VAT annual accounting scheme, you would only require to submit one VAT return per year.

Other compulsory filings

If your business is a limited company or limited liability partnership (LLP) registered with Companies House, you must comply with the UK company law.

You must prepare and submit the the documents to Companies House in addition to your VAT return to HMRC.

You can submit your company documents online. You would require your company’s authentication code to do so. The authentication code is the electronic equivalent of your company’s director(s) signatures. Hence, you must keep it safe.

Companies House has also created an interim paperless filing service to accept documents which would normally require a live signature during COVID-19 pandemic. You can easily upload your documents to the Companies House website.

If you require help with your company’s filings, contact our accountants. They will be more than happy to assist you.

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