April 2021: The Latest Tax Changes For The Self-Employed
In his Spring Budget, Chancellor Rishi Sunak promised to do “whatever it takes” to support the UK’s long-term economic recovery. He announced a three-part plan to protect jobs and livelihoods. And insisted that even though the…
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In his Spring Budget, Chancellor Rishi Sunak promised to do “whatever it takes” to support the UK’s long-term economic recovery. He announced a three-part plan to protect jobs and livelihoods. And insisted that even though the economy has shrunk by 10%, “we will recover”.
Below, we’ve provided a breakdown of the latest changes for the self-employed and what it will mean going forward.
Funding for the self-employed
It’s great to see that the Self-Employment Income Support Scheme (SEISS) and the furlough scheme will both be extended to September. It’s even better news that both the fourth and fifth grants will be accessible for the newly self-employed, who previously weren’t eligible for the scheme at all. Provided they submitted their tax return by midnight on the 2nd March, they’ll now be able to claim.
For those who are eligible, the fourth grant covers February to April 2021 and will continue to pay 80% of a person’s average trading profits up to a maximum of £2,500 a month. This will be followed by a fifth grant later in the year.
While there can be no guarantees on how much this fifth grant will contain, we do know that it will cover a maximum of £7,500. We also know that the government will determine eligibility for the final grant so that it relates to net profit and more specifically to turnover. It’s likely that only sole traders whose turnover has fallen by more than 30% will receive the full allowance. If your turnover has fallen by less than 30%, your grant will be capped at £2,850.
Income Tax threshold and pension allowance freezes
Of course, the money for this support has to come from somewhere, so it wasn’t surprising to see a freeze on Income Tax thresholds announced, although the duration of that freeze will have an incremental impact on take-home pay for the coming years. To explain, until 2026, the tax brackets will be as follows:
Personal Allowance: £12,570
The higher-rate tax threshold (40% on taxable income): £50,270
The additional rate threshold (45% on taxable income): £150,000
Similarly, the pension Lifetime Allowance will remain at £1,073,100 until 2026. This freeze means your tax-free savings will likely be smaller in real terms. But don’t confuse this with the pension Annual Allowance of £40,000, which will stay the same.
New HMRC taskforce
To further protect government funds, the Chancellor announced a new HMRC taskforce, dubbed the Taxpayer Protection Taskforce. This £100 million investment will see a team of investigators combat fraudulent claims on taxpayer money – such as those who have exploited COVID-19 support schemes.
It’s all in an effort to recover some of the funds spent on business support over the last year. And, while it’s unlikely that self-employed people have been able to massively exploit the financial schemes available, it’s positive to see the government bringing to task those that have.
That being said, a much larger problem to the UK taxpayer is the £30 million lost to pension scams since 2017. Unfortunately, the Chancellor’s announcement didn’t mention if the new task force would tackle this issue. He also didn’t address the rise in COVID-19 vaccine scams.
2021 and beyond
With more financial support schemes announced plus an extension to grant criteria, most sole traders will feel optimistic after the Chancellor’s Spring Budget. But one thing it does emphasise is the importance of tax returns.
We all know tax returns can be difficult, especially during a global pandemic when you’d rather focus on giving your business a boost. That’s why we built GoSimpleTax, a platform that saves you time, stress and money by streamlining the entire tax return process.
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