On 12 November 2020, the Government made several tax policy announcements including the extension of the temporary AIA limit increase and confirmation that the Off-Payroll Working legislation will operate as intended from 6 April 2021.
In the hope of incentivising business to boost capital expenditure, the Government has announced a yearlong extension to the temporary increase of the Annual Investment Allowance (AIA). The AIA provides in-year tax relief on 100% of the cost on qualifying capital expenditure, up to a fixed limit.
Instead of allowing the AIA to revert back to £200,000 from 1 January 2021, the Government is extending the temporary £1million cap set at Budget 2018 until 31 December 2021.
This should be a welcome relief for those businesses with substantial capital expenditure. Please speak with our tax department if you would like more information on the capital allowance rules.
A technical change to the Off-Payroll Working rules will be made in the next Finance Bill. This will ensure the legislation operates as intended from 6 April 2021 for engagements where an intermediary is a company. The change will correct an unintended widening of the definition of an intermediary, which went beyond the intended scope of the policy.
The Off-Payroll Working legislation is designed to ensure individuals working like employees but through their own limited company (often known as a ‘personal service company’ or ‘PSC’), or other intermediary, pay broadly the same Income Tax and National Insurance contributions as individuals who are directly employed. These rules are commonly known as ‘IR35’.
From 6 April 2021, the way many medium and large contractors pay tax will change. These changes will apply to all payments made for services provided on or after 6 April 2021.
These changes have been delayed from the original date of 6 April 2020, to help contractors and organisations deal with any impacts of the COVID-19 pandemic.
Please speak with Ben Davies in our tax department if you would like more information on these changes.