Freelancers - 2021/22 Tax Changes Sole Traders Need To Know
If, as a freelancing sole trader you want to prepare
for the 2021/22 tax year, then you need look no further than Rishi Sunak’s
much-talked-about Budget. In it, the Chancellor promised to do whatever it
takes to protect jobs and livelihoods, and outlined how the government intends
to support the freelancers, the self-employed and sole traders.
GoSimpleTax save you the trouble of researching each
change and list the three big updates and explain how they might affect you.
Additional COVID-19 support
Both the Coronavirus Job Support Scheme (or furlough
scheme) and the Self-Employment Income Support Scheme (SEISS) are set to be
extended until September 2021. There will be two remaining SEISS grants,
amounting to five grants in total.
The fourth as you may already know, will cover
February 2021 to April 2021 and, provided you filed your 2019/20 tax return
before midnight on the 2nd March (and meet similar criteria as the previous rounds of funding), you’re eligible. It’ll also be open
to those who became self-employed in the 2019/20 tax year. This means that
around 600,000 more people are now entitled to 80% of their average trading
profits.
As for the fifth grant, there’s not been much
confirmed yet. However, we do know it’ll cover a maximum of £7,500 and that the eligibility factors will be slightly different. Instead of
focusing purely on net profit, the government will be reviewing a sole trader’s
drop in turnover as well.
It is expected that only sole traders whose turnover
has fallen more than 30% will receive the full allowance (80% of 3 months’
average trading profits). If your turnover has fallen by less than 30%, your
grant will be capped at £2,850.
Income Tax thresholds to change, then freeze
Increases to the Personal Allowance see a rise of £70 from £12,500 to £12,570 in April 2021.
This will then be frozen until 2026 – a decision that is expected to drag 1.3 million people into paying tax as inflation increases wages and the cost of services.
Similarly, the higher-rate tax threshold (of 40% on
taxable income) will increase from £50,001 to £50,270 and then be frozen. One
million people are now expected to fall into the higher bracket by 2026.
However, these aren’t the only rates to freeze. The pension
Lifetime Allowance will remain at £1,073,100 until 2026. This isn’t to be
confused with the pension Annual Allowance of £40,000, which has seen no
changes.
The freezes in rates are undoubtedly to claw back some
of the money spent on COVID-19 relief. If you’re worried about teetering into a
higher tax band in the next five years, it’s important to plan ahead and
prepare for a change in your take-home pay.
HMRC to invest in a new taskforce
A substantial section of the Chancellor’s Budget
announcement was dedicated to the new Taxpayer Protection Taskforce.
£100m will be spent on a team of investigators who
will combat fraudulent claims on taxpayer money – including those who have
exploited COVID-19 support schemes.
Realistically, this is unlikely to target sole
traders, as the most likely abusers of COVID-19 relief will be businesses.
However, it is worth recognising the level of investment that HMRC is putting
into tax avoidance and fraud.
It remains to be seen whether or not this taskforce
will investigate the much larger problem of pension scams, that have cost the
UK taxpayer over £30m since 2017. Likewise, there was no confirmation as to
whether this group will target the rampant COVID-19 vaccine scams that have
been targeting people for months now.
Above all, we urge sole traders to keep their eye on
the latest changes to legislation as much as they can. Filing your 2020/21 tax
return as soon as possible can also help to ensure you’re eligible for upcoming
grants or forms of support.
About GoSimpleTax
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may have missed.
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