tax

Personal and business tax changes for the new tax year starting on 6th April 2021

Personal and business tax changes for new tax year, image of paper money | Crunch

Contents

    The 2021/22 tax year began on 6th April 2021. We’ve put this article together to highlight the main changes affecting individuals and businesses.  We also have an article to help businesses get ready for the end of the tax year and a 2021 Budget highlights article. If you're looking for some inspiration for 2021/22 you should take a look at our New Tax Year New You article.

    We've got a separate article that contains all the tax rates, thresholds and allowances for 2021/22 and 2020/21.

    Personal Tax, thresholds and allowances

    The Personal Allowance – the amount you can earn before paying any Income Tax –  increases to £12,570 for the 2021/22 tax year (up from £12,500 in 2020/21). The threshold for paying the Higher Rate of income tax (which is 40%) also increases to £50,270 (from £50,000 in 2020/21). Both of these thresholds will then be frozen to 2026.

    Tax rates and thresholds for the UK (excluding Scotland)

    There have been changes to thresholds in the UK and also different changes for Scotland:

    Tax Year 2021/221 2020/211
    Tax Band name Tax Rate, tax bands and tax thresholds
    Basic rate tax - The lowest level of Income Tax paid above the Personal Allowance. 20% on income between £12,571 and £50,2701 (you pay tax on £37,700) 20% on income between £12,501 and £50,0001 (you pay tax on £37,500)
    Higher rate tax - The middle tier of Income Tax. 40% on income between £50,271 and £150,0001 40% on income between £50,001 and £150,0001
    Additional rate tax - The top rate of Income Tax for high earners. 45% on income above £150,0001 45% on income above £150,0001

    There are different Income Tax rates for Scottish residents

    Scottish Income Tax Rates and Tax Thresholds

    The Scottish Government operates a different income tax regime compared to the rest of the UK, with a lower starter rate and more tax bands and tax thresholds.

    Tax Year 2021/22 2020/21 
    Tax Band name Tax Rate Tax Bands and Thresholds
    Starter rate 19% £12,571* - £14,667 £12,501* - £14,585
    Basic rate 20% £14,668 - £25,296 £14,586 - £25,158
    Intermediate 21% £25,297 - £43,662 £25,159 - £43,430
    Higher rate 41% £43,663 - £150,000 £43,431 - £150,000
    Additional rate 46% Over £150,000 Over £150,000

    The above tables assume the individual is receiving the Personal Allowance for tax-free income of £12,570 in the 2021/22 tax year (£12,500 in the 2020/21 tax year). The Personal Allowance is reduced by £1 for every £2 earned over £100,000. This is the same across the UK. There's more background to the Scottish Income Tax rates and how to see if you're classed as a Scottish taxpayer in our 'Scottish Income Tax Rates and how to check if it applies to you' knowledge article.

    You can check out our tax rates and thresholds article for more information on the Income Tax rates and thresholds.

    Impact on director tax-efficient salary recommendations

    To maximise your tax efficiency as a company Director and Shareholder in the 2021/22 tax year, we usually recommend your company should pay you a salary of £8,840 and dividends of up to £41,430.

    This allows you to use all of the basic rate band of tax, where you pay tax at 20%, and assumes you have no other income. Your total personal tax bill would then be £2,677.50, on take-home pay of £47,592.50.

    If you take more income in dividends you will pay tax on these at a rate of 32.5% as a higher rate taxpayer. Our Crunch Personal Tax Estimator can help you get a more personalised calculation.

    We have further information on how much to pay yourself as salary from your limited company. If you have any questions about how these amounts have been calculated, or you’d like your limited company to pay you more in salary, then you should speak to an accountant for tailored advice. If you don’t have an accountant or are looking to switch, give our friendly team a call on 0333 311 8000 or arrange a free consultation.

    Dividend Allowance

    The Tax-Free Dividend Allowance  for the 2021/22 tax year remains at £2,000. There are no changes to the Dividend tax rates, but the thresholds have changed in line with the income tax thresholds above.

    There is no change to dividend tax rates or to the Dividend Tax Allowance for dividend income in the 2021/22 tax year, they are the same as for the 2020/21 tax year:

    • The tax-free dividend allowance is £2,000
    • Basic-rate taxpayers pay 7.5% on dividends
    • Higher-rate taxpayers pay 32.5% on dividends
    • Additional-rate taxpayers pay 38.1% on dividends.

    You can find out more about dividends and what tax you pay in our Knowledge article.

    National Minimum Wage and National Living Wage

    Whilst not strictly a tax year change, National Minimum Wage and 'National Living Wage' amounts increase to £8.91 per hour from 1st April 2021 and the age for receiving the minimum wage reduces from 25 years to 23 years. The minimum hourly rate that your staff are entitled to depends on their age and whether they are an apprentice. Further details in our Knowledge article National Minimum Wage and National Living Wage.

    Company Cars, Vans and Fuel Benefit

    Company cars

    The previously announced increases to benefit in kind (BiK) tax rates for company cars for the 2021/22 tax year will come into force as planned. So, cars first registered after 5th April 2020 will see their benefit charge rise by one percentage point.

    Fully electric cars have no tax charge in the 2020/21 tax year, but there will be a charge on 1% of their list price in the 2021/22 tax year, increasing to 2% in 2022/23.From 6th April 2021, the percentage applied to the list price of the car will increase based on the CO2 emissions published by the Vehicle Certification Agency. HMRC has published a ready reckoner you can use to calculate your company car tax.

    Company vans and fuel benefit for company cars

    When your company pays for fuel you have used personally or allows personal use of a company van, it is a BiK. These fuel benefit charges only apply if fuel is provided for personal use.

    The tax paid on such benefits is being increased from 6th April 2021. The BiK is a fixed amount for vans and the changes are as follows for directors and employees:

    • The BiK on company vans increases to £3,500 (from £3,490)
    • The BiK on fuel for a van provided for personal use increases to £669 (from £666).

    This can be reduced if:

    • you or your employee cannot use the van for 30 days in a row
    • you or your employee pays you to privately use the van
    • other employees use the van - divide £3,500 by the number of employees

    The fuel benefit calculation for cars is a little more complex.

    A director/employee who is provided with a company car and also receives free fuel from his employer, is taxed on the cash equivalent value of the benefit each tax year. The cash equivalent amount is fixed each year and increases to £24,600 (from £24,500) on 6th April 2021.

    The BiK charge is calculated by using an appropriate percentage, which is the same as the rate for company car benefit purposes (see above) and then multiplying by the fixed amount (£24,600 in 2021/22). So if the BiK percentage for your company car is 13%, your BiK amount on the fuel provided for personal use is £3,198 (13% of £24,600).

    Self Assessment - Get the lowdown!

    Student Loans

    Student Loan Plan 1 and Plan 2 threshold increase and new Plan 4 repayments for Scottish Loans

    The Department for Education has confirmed that from 6th April 2021 the earnings threshold before you start to repay a student loan for:

    • Plan 1 loans will rise to £19,895 (from £19,390)
    • Plan 2 loans will rise to £27,295 (from £26,575)
    • A new Plan 4 scheme is being introduced for all new and existing Scottish loans with a threshold of £25,00 - anyone with an existing Scottish loan will be moved from their existing Plan 1 to Plan 4.

    If you’re a director being paid salary and dividends from your company, and you’re paying back a student loan, you must remember the threshold for repayment is based on your total income.

    This will apply to all current and future student loans where employers make student loan deductions. So if you run a payroll for any employees who have student loan deductions, you need to ensure you have a record of what type of loan they have, so that the correct deductions are made.

    We've also written a more detailed article on Student Loan repayments.

    Postgraduate Master’s Loan and Postgraduate Doctoral Loan (New)

    A Postgraduate Master’s Loan is a type of loan introduced by the government to help with course fees and living costs while you study a postgraduate master’s course. The repayment of your Postgraduate Loan is treated the same as any other Student Loan and interest is charged from the day you get the first payment.

    Repayment will be at 6% for students in England and Wales on income above £21,000. The rate is 9% for Scottish and Northern Ireland students with income above £18,330.

    Other personal tax reliefs and allowances

    Personal Savings

    The band of savings income that is subject to the 0% starting tax rate remains at its current level of £5,000 for the 2021/22 tax year.

    The adult ISA annual subscription limit for the 2021/22 tax year remains unchanged at £20,000.

    The annual subscription limit for Junior ISAs and Child Trust Funds for the 2021/22 tax year is unchanged at £9,000.

    Higher-income Child benefit charge threshold not increasing

    Since January 2013, there has been a clawback charge on the higher earner of a couple where one claims Child Benefit and either has an income over £50,000. This has always been called the ‘High Income Child Benefit Charge’, but now for the first time, it appears that it can apply to a basic rate taxpayer, because there was no mention of a change to the £50,000 threshold, even though the Income Tax higher rate threshold did increase.

    Personal pensions

    The tax-free amount you can pay into a personal pension remains at £40,000 for the 2021/22 tax year. The lifetime allowance for pension savings remains at £1,073,100 and will be frozen until 2026.

    Capital Gains Tax

    The Capital Gains Tax annual exempt amount for individuals remains at £12,300 for the 2021/22 tax year and will be frozen at that level until 2025/26

    Inheritance Tax

    There is no change to the Inheritance Tax (IHT) nil rate band, the threshold remains at £325,000 and is frozen at that level until 2026.

    Entrepreneurs’ Relief

    From 6th April 2020 the Entrepreneurs Relief lifetime allowance limit remains capped at £1 million.

    Corporation Tax, workplace pensions and allowances

    Corporation Tax

    Corporation Tax payable on company profits remains at 19% for the 2021/22 tax year, but at the March 2021 budget, the Chancellor announced plans for a rise in the headline rate of Corporation Tax to 25% from April 2023. From that date, there will be a new small profits rate of 19% for companies with profits of less than £50,000 with a tapered increase to the rate as profits increase. Businesses with profits over £250,000 will pay the main rate of 25% from April 2023.

    Workplace pensions (auto-enrolment)

    There are no changes to the minimum amount you need to pay into your employee’s auto-enrolment workplace pension. This means the total amount of employer and employee contributions remains a minimum of 8% of your employee’s qualifying earnings.

    Date effective Total minimum contribution Employer minimum contribution Staff contribute the remainder
    Current 8% 3% Up to 5%

    Annual Investment Allowance (AIA)

    In November 2020, the government announced the extension of the AIA’s temporary £1 million cap until the end of 2021. No other changes were announced.

    Apprenticeships

    The apprentice hiring incentive in England was extended to September 2021 and the payment increased to £3,000. A flexi-apprenticeship scheme was also announced that will allow apprentices to work with multiple employers in a sector.

    Business investment tax relief and loss relief for businesses

    A new “super-deduction” tax relief was announced for businesses to reduce their tax bill by 130% of what they spend on investment. The Chancellor also announced the extension of the normal loss carry-back rules from one year to three years for losses of up to £2 million. This will enable tax repayments to be claimed, providing relief and cash flow support for businesses.

    Business rates

    The expected government review of Business Rates has not yet been delivered.Eligible retail, hospitality and leisure properties in England will continue to receive 100% business rates relief from 1st April 2021 to 30th June 2021.

    This will be followed by 66% business rates relief for the period from 1st July 2021 to 31st March 2022, capped at £2 million per business for properties that were required to be closed on 5th January 2021, or £105,000 per business for other eligible properties.

    Nurseries will also qualify for relief in the same way as other eligible properties.

    Extension of Covid support

    We’ve got articles about the extension to the two main support schemes: the SEISS scheme for the self-employed and the CJRS Furlough scheme for employees and directors.

    Recovery Loan Scheme

    From 6th April 2021, the Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million. The scheme will be open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes. We’ll give further details on the new scheme once they’re available.

    The previous loan schemes Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme will close as planned on 31st March 2021.

    New Restart Grants to help businesses reopen in England

    New ‘Restart Grants’ to help businesses in England reopen when lockdown begins to ease from April 2021 were announced:

    • Non-essential retail businesses will receive grants up to £6,000 per premises.
    • Hospitality and leisure, including personal care and gyms, which are more impacted by restrictions and may not open until later in the year, can each receive grants of up to £18,000.

    Measures to help businesses reopen across the rest of the UK are expected to be announced in due course by the relevant devolved administrations.

    Statutory Sick Pay

    Small and medium-sized employers in the UK will continue to be able to reclaim up to two weeks of eligible Statutory Sick Pay (SSP) costs per employee from the government.

    Universal Credit and Working Tax Credit

    The temporary additional £20 Universal Credit uplift will be extended by a further six months and also announced a £500 one-off payment for eligible Working Tax Credit claimants.

    Other Taxes and support

    Alcohol and Fuel Tax

    Duty on alcohol and fuel continues to be frozen for the next 12 months and planned increases are cancelled.

    Stamp Duty Land Tax

    The stamp duty holiday for the first £500,000 Nil Rate Band of the purchase price will continue until the end of June 2021. From 1st July 2021, the Nil Rate Band will reduce to £250,000 until 30th September 2021 before returning to £125,000 on 1st October 2021.

    Mortgage Guarantee Scheme

    A new mortgage guarantee scheme starts in April 2021. This scheme will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of just 5% on homes with a value of up to £600,000. Under the scheme, all buyers will have the opportunity to fix their initial mortgage rate for at least five years should they wish to.

    The scheme, which will be available for new mortgages up to 31st December 2022, will increase the availability of mortgages on new or existing properties for those with small deposits. Our Crunch Mortgages team will be able to let you know more about how you can take advantage of any of the mortgage updates.

    Where necessary, we’ll be updating this article and our related articles with further changes as more details are released. If you’re not already a Crunch client, please join our free self-employed community Crunch Chorus, to keep up to date with all the latest news and information that affects business owners in the UK, or sign up for our newsletter below.With the New Tax year almost upon us, why not think about ways you could be more efficient. Our article New Tax Year You has some great ideas.

    Business Expenses made simple with our guide.

    End of tax year 2020/21 webinar

    We held a webinar on Wednesday 10th March 2021 where our Senior Technical Accountant, Michael Awuye went through all the things you need to do before the end of the tax year and how to get prepared for the new tax year, as well as an overview of changes announced in the 3rd March 2021 budget.

    Crunch Masterclass: Get Ready For End of Tax Year 2020/21

    Read on for help with getting ready for the end of the 2020/21 tax year and getting ready for the new tax year 2021/22 which starts on 6th April - or you might prefer to watch our end of tax year masterclass, which looks at everything you should be doing to maximise your tax-efficiency.

    The webinar slides are available here. (Read the End of Tax Year Q&A)

    Need some help?

    All of the above comments are for your information only. We always recommend speaking to an accountant for a more in-depth analysis of your circumstances. If you don't have an accountant or are looking to switch, give our friendly team a call on 0333 311 8000 or arrange a free consultation.