Tax Rates and Budget Helpline

Tax Rates and Allowances for Individuals and Business:

Personal tax rates and allowances are generally set for income tax years running to 5 April. Corporate rates and allowances are set for financial years.

How much Income Tax you pay in each tax year depends on:

• how much of your income is above your Personal Allowance
• how much of your income falls within each tax band

Some income is tax-free.

The current tax year is from 6 April 2021 to 5 April 2022.

For Individuals:

Personal Allowances 2021/22

Individuals (all): £12,570                                  
Marriage allowance*: £1,260
Minimum married couples allowance*: £3,530
Maximum married couples allowance*: £9,125
Income limit for married couples allowances: £30,400 (allowances are abated if income limit exceeded)
Blind person’s allowance: £2,520
Dividend allowance: £2,000
Property Allowance: £1,000
Trading Allowance: £1,000
Personal savings allowance (basic rate taxpayers): £1,000
Personal savings allowance (higher rate taxpayers): £500
Income limit for standard personal allowances: £100,000 (allowance completely lost once taxable income exceeds £125,140)

The Chancellor announced that the personal allowance will be frozen at £12,570 for the tax years 2022/23 to 2025/26.

** Tax relief given at 10% where one partner was born before 6/4/1935

Personal Allowances 2020/21

Individuals (all): £12,500
Marriage allowance*: £1,250
Minimum married couples allowance*: £3,510
Maximum married couples allowance*: £9,075
Income limit for married couples allowances: £30,200 (allowances are abated if income limit exceeded)
Blind person’s allowance: £2,500
Dividend allowance: £2,000
Property Allowance: £1,000
Trading Allowance: £1,000
Personal savings allowance (basic rate taxpayers): £1,000
Personal savings allowance (higher rate taxpayers): £500
Income limit for standard personal allowances: £100,000 (allowance completely lost once taxable income exceeds £125,000)

**Transferable allowance available to married couples and civil partners who are not in receipt of married couple’s allowance.  The recipient spouse cannot be liable to higher or additional rate tax.

** Tax relief given at 10% where one partner was born before 6/4/1935

Tax Rates for 2021/22

Starting rate for savings income* (0%): 0 to £5,000
Basic rate (20%): 0 to £37,700
Higher rate (40%): £37,701 to £150,000
Additional rate (45%): over £150,000

*The starting rate means that anyone whose total income is no more than their personal allowance plus £5,000, will not pay tax on their savings income.

The tax rate on company dividends is 7.5% for basic rate taxpayers, 32.5% for higher rate and 38.1% for additional rate taxpayers.  

Tax Rates for 2020/21

Starting rate for savings income* (0%): 0 to £5,000
Basic rate (20%): 0 to £37,500
Higher rate (40%): £37,501 to £150,000
Additional rate (45%): over £150,000

*The starting rate means that anyone whose total income is no more than their personal allowance plus £5,000, will not pay tax on their savings income.

The tax rate on company dividends is 7.5% for basic rate taxpayers, 32.5% for higher rate and 38.1% for additional rate taxpayers.  

Please check the UK government site for more information.

The Coronavirus Job Retention Scheme (JRS)

The current JRS allows an employer to place an employee on furlough and apply for a grant to cover wage costs for the time an employee is onfurlough. The employer:

• can claim 80% of ‘usual salary’ for hours not worked, up to a maximum of £2,500 per employee (pro-rated for hours not worked) per month

• needs to fund employer National Insurance contributions (NICs) and the    minimum employer automatic enrolment pension contributions.

In December 2020, the Chancellor extended the scheme until the end of April 2021.

Further extension of JRS

In Budget 2021 the Chancellor has further extended the scheme to 30 September 2021.

The level of grant available to employers under the scheme will stay the same until 30 June 2021.

From 1 July 2021, the level of grant will be reduced and employers will be asked to contribute towards the cost of furloughed employees’ wages. To be eligible for the grant an employer must continue to pay furloughed employees 80% of their wages, up to a cap of £2,500 per month for the time they spend on furlough.

The reduction in the level of the grant means that the percentage recovery of furloughed wages will be as follows:

• for July 2021 70% of furloughed wages up to a maximum of £2187.50 and

• for August and September 2021 60% of furloughed wages up to a maximum     of £1,875.00.

Employers will need to continue to fund employer NICs and mandatory minimum automatic enrolment pension contributions.

Child Benefit

For every £100 of income over £50,000, a tax charge will apply equivalently to 1% of the Child Benefit received by the family. This will lead to the complete withdrawal of Child Benefit at £60,000 of net income.

This tax charge is collected via the Self-Assessment tax return process from the higher earning partner in the family.

Pension Contributions

Annual Allowance: 2021/22*: £40,000 (2020/21 – £40,000)
Lifetime Allowance: 2021/22: £1,073,100 (2020/21 – £1,073,100)

*New rules came into effect on 6 April 2016, restricting the pension Annual Allowance for individuals whose annual income exceeds £150,000 including the value of their pension savings. This has now been increased in the current 2020/21 tax year and the threshold at which the tapered annual allowance kicks in will be raised by £90,000 from £150,000 to £240,000.  Please contact us if you wish to discuss this in more detail.  

The annual pension input, whether contributions are paid by the individual, the employer, or calculated as a deemed rise in the value of a defined benefit final salary scheme, must not exceed the Annual Allowance if a tax charge is to be avoided.

Each individual has an Annual Allowance for the current year, plus potentially unused Annual Allowances brought forward from the previous three tax years. If the value of the contributions/input made to the pension scheme exceeds the individual’s Annual Allowance, a tax charge applies on the excess contributions, set at the taxpayer’s highest rate of income tax.

The Lifetime Allowance (LTA) sets the maximum tax-deductible UK pension savings an individual can have during their lifetime.  This was reduced from £1,250,000 for the 2015/16 year.  Under certain circumstances it may be possible to apply to HMRC for protection against the reduction in the LTA.  If you would like to discuss this further please feel free to contact us.

Independent Savings Accounts (ISAs)

For those aged 16 or over, in the 2021/22 year up to £20,000 (2020/21: £20,000), can be invested in cash or stocks and shares in any proportion.  The Junior ISA/Child Trust Fund (CTF) limit is £9,000 for the 2021/22 year (£9,000 for 2020/21).

Capital Gains Tax

The rates for 2020/21 are:

Annual exemption: £12,300
Annual exemption for most trustees: £6,150
Rate for gains within basic rate band for income tax after taking into account other taxable income: 10% (18% in certain circumstances, e.g. sale of residential property, “carried interest”).
Rate for gains above basic rate band for income tax relief after taking into account other taxable income: 20% (28% in certain circumstances, e.g. sale of residential property, “carried interest”).
Rate for gains subject to Entrepreneurs’ Relief: 10%
Lifetime limit for Entrepreneurs’ Relief: £1,000,000
Rate for gains subject to Investors’ Relief: 10%
Lifetime limit for Investors’ Relief: £10,000,000

In broad terms only UK resident individuals pay CGT on gains but non-residents of the UK potentially will be liable to UK CGT if they sell residential UK properties.  There are also some complex rules for those individuals who are non-domiciled and/or become “temporary non-residents”.

From 6 April 2020, non-residents and UK residents selling UK property will need to complete a Residential Property Return and pay any tax that may be due on the sale of the property within 30 days of conveyancing.  

Inheritance Tax

The Inheritance Tax (IHT) nil rate band has been frozen at £325,000 since 2009 and this will continue up to 5 April 2026. This is the amount of a person’s estate that is free of inheritance tax when they die. Gifts made to charities are exempt from IHT. Transfers to UK domiciled spouses/civil partners are exempt.

From April 2017 onwards, the Government introduced a new “main residence nil-rate band” which applies when a residence is passed on death to a direct descendant and is in addition to the existing nil-rate band.  The main residence nil-rate band is initially worth £100,000 and will then increase gradually to £175,000 by April 2020.

Transfers from a UK domiciled to a non-UK domiciled spouse/civil partner have a £325,000 exemption in addition to the £325,000 nil rate band outlined below (i.e. a UK domiciled individual can gift up to £650,000 to their non-UK domiciled spouse free from IHT).

Non-domiciled individuals with UK domiciled spouses/civil partners can also elect to be treated as domiciled in the UK for IHT purposes only if they wish.

The limits and rates for 2021/22 are:

Nil rate band: £325,000 (2019/20 – £325,000)
Rate payable on death: 40% (2019/20 – 40%)
Rate payable when 10% of estate left to charity: 36% (2019/20 – 36%)
Rate payable on lifetime gifts above the nil rate band: 20% (2019/20 20%)

Stamp Duty Land Tax (SDLT)

New SDLT rates are proposed for purchasers of residential property in England and Northern Ireland who are not resident in the UK. The new rates will be 2% higher than those that apply to purchases made by UK residents, and will apply to purchases of both freehold and leasehold property as well as increasing SDLT payable on rents on the grant of a new lease. The surcharge will apply to land transactions with an effective date of 1 April 2021 or later. Transitional rules may apply to some contracts exchanged before 11 March 2020 but completed or are substantially performed on or after 1 April 2021, or some contracts substantially performed on or before 31 March 2021 but not completed until 1 April 2021 or later.

Special measure of reduced stamp duty during Covid

This measure introduces a staged withdrawal of the temporary increase to the amount that a purchaser can pay for residential property before they pay Stamp Duty Land Tax (SDLT), by:

• extending to 30 June 2021 the nil rate band of £500,000, which was due to end on 31 March 2021
• introducing a nil rate band of £250,000 for the period 1 July 2021 to 30 September 2021

From September 30, 2021, following existing rule will prevail.

SDLT RATES

Residential Property: From 4 December 2014 the SDLT system has changed to a banded system for residential property so that each rate applies to the element of the purchase price falling within that band.

From 6 April 2021 a 2% SDLT surcharge will apply on non UK residents purchasing residential property.

You will usually have to pay 3% on top of the normal SDLT rates if buying a new residential property which means you will own more than one residential property (either a second home or a buy-to-let).

A flat rate of 15% of the entire purchase price applies to residential property purchased by Non-Natural Persons such as companies, collective investment schemes, or partnerships where a member is a company or a collective investment scheme.

Commercial Property: From 17 March 2016 the SDLT system for commercial property has also changed to a banded system for residential property so that each rate applies to the element of the purchase price falling within that band.

 Annual Tax on Enveloped Dwellings (ATED)

From April 2013 an annual tax charge may also be applied to the value of residential properties owned by non-natural persons such as companies, where each property is worth over £2 million.

The ATED charge payable for 2020/21 and 2019/20 depends on the value of the property:

The ATED return and payment must be made by 30 April at the start of each tax year. Several reliefs from ATED are available, such as full relief for properties let out on a commercial basis to unconnected parties.

Stamp Duty

Tax Rates & Allowance for Businesses

Corporation Tax

The main rate of corporation tax is currently 19% and it will remain at that rate until 1 April 2023 when the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.

Tax losses

A temporary extension of the period over which businesses may carry trading losses back for relief against profits of earlier years to get a repayment of tax paid will have effect for company accounting periods ending in the period 1 April 2020 to 31 March 2022 and for tax years 2020/21 and 2021/22 for unincorporated businesses.

Trade loss carry back will be extended from the current one year entitlement to a period of three years, with losses being carried back against later years first.

For companies, after carry back to the preceding year, a maximum of £2 million of unused losses will be available for carry back against profits of the same trade to the earlier two years. This £2 million limit applies separately to the unused losses of each 12 month period within the duration of the extension.

For individuals a separate £2 million cap will apply to the extended carry back of losses made in each of the tax years 2020/21 and 2021/22. The £2 million limit applies separately to the unused losses of each tax year within the duration of the extension. Income Tax payers will not be subject to a partnership-level limit.

Super-deduction

Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery will benefit from new first year capital allowances. Under this measure a company will be allowed to claim:

• a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances

• a first year allowance of 50% on most new plant and machinery investments that

ordinarily qualify for 6% special rate writing down allowances. This relief is not available for unincorporated businesses.

More about Tax please read my article about Tax Helpline about the recent changes.

Read the article about the tax codes links and recent issues

Capital Allowances

The rates and thresholds of the main capital allowances will apply as follows for 2020/21:

Main pool: Writing Down Allowance: 18%
Special rate pool (including high emission cars above 110g/km): Writing Down Allowance: 6%
Low emission cars (CO2 emissions less than 50g/km): Writing Down Allowance: 100%

Annual Investment Allowance from 1 January 2015: 100% capped on an expenditure of £200,000 per year.

The maximum Annual Investment Allowance has increased to £1,000,000 from 1 January 2019 to 31 December 2020 (£200,000 pa to 31 December 2018 and from 1 January 2021)

Employers

National Insurance Contributions (NIC)

For 2020/21 the main rates and thresholds for NIC are:

Lower Earnings Limit (LEL) for Class 1 NICs: £120/week
Employer’s Class 1 above £183/week: 13.8%
Employee’s Class 1 from £183 to £962/week: 12%
Employee’s additional Class 1 above £962/week: 2%
Self-employed Class 4 from £9,500 to £50,000 per annum: 9%
Self-employed Class 4 additional rate above £50,000 per annum: 2%
Self-employed Class 2: £3.05 per week
Voluntary contributions Class 3: £15.30 per week

The Government is consulting on its intentions to integrate the administration of income tax and NIC for employers and the self-employed.

Share Schemes

The Government wants to encourage more employees to acquire shares in their employing companies. Small and medium sized companies can use the Enterprise Management Incentive (EMI) share option scheme to grant share options to employees, but there has been a £250,000 cap on the value of share options each employee can acquire from 16 June 2012 onwards.

Cars and Car Fuel

The tax scale charge for the private use of a company car by employees is calculated on a percentage of the list price of that car when new, the percentage being based on how “green” the car is i.e. the vehicle’s CO2 emissions.

From 6 April 2020 cars with CO2 emissions:

From 6 April 2021 cars with CO2 emissions:

• Of 0 g/km: will be taxed at 1% of list price (16% in 2019/20)
• Of up to 50 g/km (electric range >130 miles): will be taxed at 1% (5% if diesel) of list price (16% in 2019/20).
• Of up to 50 g/km (electric range 70-129 miles): will be taxed at 4% (8% if diesel) of list price (16% in 2019/20).
• Of up to 50 g/km (electric range 40-69 miles): will be taxed at 7% (11% if diesel) of list price (16% in 2019/20).
• Of up to 50 g/km (electric range 30-39 miles): will be taxed at 11% (15% if diesel) of list price (16% in 2019/20).
• Of up to 50 g/km (electric range <30 miles): will be taxed at 13% (17% if diesel) of list price (16% in 2019/20).
• 51 – 54 g/km (electric range <30 miles): will be taxed at 15% (19% if diesel) of list price (19% in 2019/20).
• Each additional 5 g/km: will be taxed at a further 1% of list price to a maximum of 37% forupto 165g/km CO2. (160g/km CO2 in 2020/21).

Vans available for private use attract a scale charge of £3,500 (£3,490 in 2020/21).

From 6 April 2021 cars with CO2 emissions:

• Of 0 g/km: will be taxed at 1% of list price (16% in 2019/20)
• Of up to 50 g/km (electric range >130 miles): will be taxed at 1% (5% if diesel) of list price (16% in 2019/20).
• Of up to 50 g/km (electric range 70-129 miles): will be taxed at 4% (8% if diesel) of list price (16% in 2019/20).
• Of up to 50 g/km (electric range 40-69 miles): will be taxed at 7% (11% if diesel) of list price (16% in 2019/20).
• Of up to 50 g/km (electric range 30-39 miles): will be taxed at 11% (15% if diesel) of list price (16% in 2019/20).
• Of up to 50 g/km (electric range <30 miles): will be taxed at 13% (17% if diesel) of list price (16% in 2019/20).
• 51 – 54 g/km (electric range <30 miles): will be taxed at 15% (19% if diesel) of list price (19% in 2019/20).
• Each additional 5 g/km: will be taxed at a further 1% of list price to a maximum of 37% forupto 165g/km CO2. (160g/km CO2 in 2020/21).

Vans available for private use attract a scale charge of £3,500 (£3,490 in 2020/21).

FUEL BENEFIT

Where a company car driver receives free fuel for private use, the taxable scale charge is calculated as a percentage of a national list price for the car, currently £24,600 (£24,500 in 2020/21).  The charge is calculated by applying the above percentages according to the level of the car’s CO2 emissions.

The taxable benefit when fuel is provided for private use in a company van is £669 (£666 in 2020/21).   

VAT

The UK VAT rates remain unchanged and are:

Reduced rate: 5%
Standard rate: 20%

The registration and deregistration annual turnover limits from April 2017 are:

Registration turnover: £85,000 (£85,000 in 2019/20)
Deregistration turnover: £83,000 (£83,000 in 2019/20)

For the further queries, please don’t hesitate to contact Focus Somar telephone helpline.