A tax is a compulsory contribution to government revenue. Taxation is a method of raising funds for the government and has been used by almost all governments for hundreds of years. The UK has a wide range of taxes, including income tax, company tax, VAT, capital gains tax, inheritance tax, capital gains tax, and wealth tax.
Here, we look at some of the tax changes to be aware of for 2021.
Vat Reverse Charge
The domestic reverse charge on VAT for construction and building services, often referred to as the reverse charge, is an extension of the Construction Industry Scheme (CIS). It is applicable solely to transactions between VAT-registered contractors and subcontractors that are recorded under the CIS.
What this means is that the act eliminates the requirement for individuals who provide services (within construction) to a VAT-registered client to account for VAT. Instead, under the new tax structure, which takes effect in October 2020, the consumer will be responsible for VAT.
In the case of subcontractors, the contractor who employs them will now be fully responsible for VAT and will pay it directly to HMRC, therefore lowering the total tax you pay.
Change in Capital Gains Tax
A change in capital gains tax is expected as a result of a modification in the allowance level.
Current taxation on capital gains (profits generated from the appreciation of an asset other than one’s own house) is based on the amount of profit made from the appreciation of an asset.
An allowance of up to £12,000 is available, which allows you to keep everything that falls inside this bracket before being subjected to taxation. In April 2020, this tax band will be raised, and the capital gains tax exemption will be increased to £12,300 from the current level.
New Tax Penalty Point System
In April 2022, HMRC will roll out a new points-based penalty system for late VAT filings, which will be effective for all VAT customers. The new system will take effect on April 6, 2023, for people who file an Income Tax Self-Assessment (ITSA) and who have a business or property income of more than £10,000 per year under the current system. It is anticipated that the system will become operational on April 6, 2024, for all additional ITSA submissions.
The new approach is meant to be more equitable for those who miss deadlines from time to time while also cracking down on those who are frequently late with payments and reports.
The personal allowance is the fixed amount of income on which you are assured not to be taxed. In 2019/20, this increased from £11,850 to £12,500 per year. The money you make once you reach £12,500 is taxed at your marginal tax rate based on your income. This amount is referred to as your income tax threshold.
Aside from the basic allowances, you may also be entitled to extra benefits, such as the first £1,000 in self-employment income and the first £1,000 in rent from a rented property. Both of them, however, may have an influence on your tax rate, so be sure to check ahead of time to see whether you qualify before filing your Self-Assessment tax return.
The 2021 Taxation Year is going to see a whole host of changes to the UK taxation system. These changes will affect a large number of taxpayers, but not every taxpayer.
In this article, we have covered exactly who is affected by these taxes and how it’s going to change for them from the 2020-2021 tax year.