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Important Tax Law Changes That May Affect Your Clients

Important Tax Law Changes That May Affect Your Clients



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Following Brexit and a worldwide pandemic with unprecedented working and income conditions, life is slowly going back to normal. Whether you have spent the past year helping your clients with furlough schemes or shaping their business for a new economy outside of the EU, there are probably some changes to tax laws which affect all of your clients directly.

Read on to discover what they are and to avoid any penalties going into the next tax year.


1. IR35 Self-Employed Tax Rules

 Following the coronavirus pandemic, many of your clients may now be self-employed or working as contractors. Prior to the introduction of IR35, contractors and freelancers working under limited companies were responsible for working out their own employment status for tax purposes. Under the new law passed in April 2021, IR35 means that the client is now responsible for working out a contractor’s employment status for tax.

 This is an extremely important change to tax laws to convey to clients as it will most likely cause confusion about new ways of working. It’s crucial to explain the IR35 law very clearly to any of your clients who may employ contractors or be one themselves, in order to avoid penalties and keep off-payroll employment smooth.


2. Increase in Income Tax Allowances

In the tax year 2021/22, there will be an increase to the thresholds for personal income tax. The personal allowance refers to the amount of income you can earn before paying tax. From April 2021, the threshold for 20% taxpayers will increase to £12,500, and for those paying 40% it will increase to £50,270. This is a new tax law which will no doubt affect all of your clients, both personally and also any clients who are themselves businesses.

 Employers and employees alike will be affected by this new tax law. While lower earners will benefit from earning more before paying tax, bigger earners may rely on you for advice on tax-efficient higher salaries.


3. Increase in Capital Gains Tax Allowances


Capital Gains Tax refers to the tax paid on the profit of an asset when it’s sold. This refers to any assets which aren’t your client’s home. Up until now, there has been an allowance of £12,000, so Capital Gains Tax isn’t paid on any profits up to this amount. However, from April 2020, this allowance bracket increased to £12,300. This is good news for any of your personal clients looking to sell assets who may now need to pay less tax than originally thought.

 It’s worth noting that the exceeding profits are taxed at 10% for basic taxpayers and 20% for those in higher brackets, which may come into consideration when advising clients on selling any assets in the coming year.


4. Increases to Pension Tax Relief Thresholds

If your clients have a pension, they may be eligible for pension tax relief which is when some of an individual’s earnings which may have gone to the government in tax can be transferred into a private pension instead. In March 2020, the Government changed this law so that the annual pension allowance will increase from £110,000 to £200,000. In addition to this, the government has increased the lifetime allowance on pensions to £1.075 m,meaning you do not need to pay any tax on your pension until you reach the age of 75 (state pension age) or your pension exceeds this amount.

 These new changes make pensions an extremely beneficial way for employees to save money both in a pension and annually on tax bills. The rise in thresholds also makes employees on lower incomes more inclined to use pension schemes as they will need to have an adjusted income exceeding £240,000 to start paying higher tax on their pension. For clients of yours who are SMBs or, in fact, larger enterprises, this is an extremely positive tax change for their own employee relationships.  


5. The VAT Reverse Charge

 This new tax law change applies specifically to clients who work in the construction industry. From October 2020, any services provided by companies who operate in construction and supply services to VAT-registered customers will no longer account for the VAT on their services. Going forward it will be the customer who will now account for the VAT. Similarly, subcontractors will no longer need to handle the VAT but rather their employer.

This is an important tax change to communicate to any clients who work in the construction industry. Clients such as property companies or developers may be negatively impacted by this or will need to fill in more paperwork at some point in the tax year. By contrast, self-employed contractors will be paying less tax so this is also important to communicate.


6. Inheritance Tax for Direct Descendants

If you have clients who are looking to write a will, letter of wishes or last testament, or unfortunately, if your clients find themselves on the receiving end of a lost ones wishes, this tax law change will directly affect them. Originally, there was a tax-free threshold of £325,000 on estates of those who have passed away. There is no tax to pay on anything below this threshold or if all of the estate is passed onto a civil partner or spouse. From 2017/18 the government added an additional threshold of £125,000 if the main residence is left to a child or grandchild.

In 2021 this threshold will now rise to £175,000 which gives your clients an opportunity to leave a main residence as part of their estate to other family members with less tax pressure on the recipients.  

Being proactive in your communication about new tax law changes in the UK for the coming tax year will allow you to build client relationships as an accountancy firm. The UK Government website has plenty more information for you to refer to your clients on changing tax laws and updates to existing ones.

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