Finance Act 2021
Overview
The Finance Act 2021 introduces significant changes to the country’s tax system and financial regulations. These changes impact individuals, businesses, and the overall economy. The Act also encompasses a wide range of provisions aimed at supporting the UK’s economic recovery, enhancing tax compliance, and addressing emerging challenges. It introduces measures related to income tax, corporation tax, value-added tax (VAT), capital gains tax (CGT), and various other areas of finance and taxation.
Corporate Tax changes under the Finance Act 2021 are as follows:
- The corporation tax rate for companies with profits exceeding £250,000 is set to increase from 19% to 25% by April 2023;
- Smaller businesses with profits below £50,000 will continue to be taxed at a 19% rate; and
- A tapering rate will be implemented for profits between £50,000 and £250,000.
Digital Services Tax (DST) provisions under the Finance Act 2021 are as follows:
- The DST is applicable to digital businesses with global revenues exceeding £500 million and UK revenues exceeding £25 million; and
- A 2% tax will be levied on the revenues generated from specific digital services, including online marketplaces, social media platforms, and search engines.
Off-Payroll Working (IR35) changes under the Act are as follows:
- The IR35 legislation, aimed at preventing tax avoidance through the use of off-payroll workers, underwent significant changes; and
- Responsibility for determining employment status and deducting appropriate taxes shifts to medium and large-sized businesses.
Lastly, with regards to VAT and E-commerce:
- The Finance Act 2021 introduces new rules for VAT on e-commerce transactions, particularly affecting online marketplaces and overseas sellers; and
- Non-UK businesses selling goods to UK consumers may need to register and account for VAT in the UK.
The Finance Act 2021 was passed on the 10th of June 2021.
The Finance Act 2021 applies to the following countries:
- United Kingdom;
- England;
- Scotland;
- Wales; and
- Northern Ireland.
Does the Finance Act 2021 affect my business?
- Larger businesses will face a higher corporation tax rate, impacting their profitability and cash flow.
- Smaller businesses can benefit from the continuation of the 19% rate for profits below £50,000.
- Companies in the digital sector will be subject to the Digital Services Tax, potentially affecting their profitability and overall business model.
- Compliance with new reporting and tax payment requirements will be necessary.
- Medium and large-sized businesses will need to carefully assess the employment status of off-payroll workers and ensure appropriate tax deductions.
- Compliance with IR35 regulations will require additional administrative efforts and potentially impact workforce composition.
- E-commerce businesses, including online marketplaces and overseas sellers, will need to comply with new VAT rules for cross-border sales.
- Additional administrative burden and potential cost implications may arise.
Do I need the Finance Act 2021 in my ISO Compliance Register?
All organisations will be affected by this Act as it lays out the rules for how tax is applied in the UK. Therefore you will need the Finance Act 2021 in your ISO Compliance Register.
Legislation related to the Finance Act 2021
Legislation related to the Finance Act 2021 include:
- Criminal Finances Act 2017
- Finance Act 2016
- Finance Act 2019
- Financial Services Act 2021
More information
Visit the Finance Act 2021 article on the legislation.gov.uk website.
Create an account in the ISO Compliance Register App and add this article to your Register.
