Knowledge from Crunch - love accounting

UK Tax rates, thresholds, and allowances for the 2020/21 and 2019/20 tax years

Posted by Crunch Accountants on Mar 11th, 2020 | Tax

UK Tax rates, thresholds, and allowances for 2018/19 - a pound coin | Crunch

The UK has many different tax rates, thresholds and allowances affecting individuals and businesses. As a business owner, you’ll be affected by many of them.

As well as the actual tax rates, your personal finances could be affected by the governmant’s annual changes to tax bands and allowances. Working out your income can be tricky with a tax system as complex as the UK’s! Check out our take-home pay calculator to get a quick answer. You can also download our Crunch Personal Tax Estimator to get a more detailed breakdown of the tax you may need to pay.

UK tax rates

Tax rates and thresholds for the 2019/20 and  2020/21 tax years are shown below. We’ve split them into Personal and Company tax rates – you can use the links to jump to the relevant section.

Need accounting help?

At Crunch, we make keeping on top of your business finances a breeze, with our super-hero client managers, expert accountants and easy-to-use online accounting software. You can monitor the performance of your business at the click of a button, whenever you want and wherever you are, with a super-secure, cloud-based system.

Banner - What are the benefits of an online accountant?

This article covers

Personal tax rates in the UK

Company tax rates in the UK

Personal tax allowances and rates

2019/20 2020/21
Personal Allowance – The amount of tax-free income you have each tax year £12,500 £12,500
Income limit for Personal Allowance – The level of earnings at which the Personal Allowance reduces. For each £2 in earnings above £100,000, you lose £1 of Personal Allowance.

You don’t receive any personal allowance when you earn over £125,000 (the 2019/20 equivalent was also £125,000).

£100,000 £100,000

Back to top

Note: The amounts below assume the individual is receiving the Personal Allowance for tax-free income of £12,500 in the tax year. The Personal Allowance is reduced by £1 for every £2 earned over £100,000.

2019/201 2019/201
Tax Band name Tax Rate, bands and thresholds
Basic rate The lowest level of income tax paid above the personal allowance. 20% on income between £12,501 and £50,0001 (you pay tax on £37,500) 20% on income between £12,501 and £50,0001 (you pay tax on £37,500)
Higher rate – The middle tier of income tax. 40% on income between £50,001 and £150,0001 40% on income between £50,001 and £150,0001
Additional rate – The top rate of income tax for high earners. 45% on income above £150,0001 45% on income above £150,0001

1There are different Income Tax rates for Scottish residents 

The Scottish Government has operated a different income tax regime compared to the rest of the UK since the 2018/19 tax year. This means anyone resident in Scotland pays different income tax rates, using more bands and thresholds, compared to the rest of the UK.

2019/20 tax year 2020/21  tax year
Tax Band name Tax Rate Tax Bands and Thresholds*
Starter rate 19% £12,501* – £14,549 £12,501* – £14,585
Basic rate 20% £14,550 – £24,944 £14,586 – £25,158
Intermediate 21% £24,945 – £43,430 £25,159 – £43,430
Higher rate 41% £43,431 – £150,000 £43,431 – £150,000
Additional rate 46% Over £150,000 Over £150,000

*Personal Allowance is £12,500

The above table assumes the individual is receiving the Personal Allowance for tax-free income of £12,500 in the tax year. The Personal Allowance is reduced by £1 for every £2 earned over £100,000. This is the same as the rest of 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.

Back to top

There is no change to dividend tax rates in 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.

For more information about dividends read our article “What are dividends and what tax do I pay on them?

Back to top

Directors Responsibilities Guide PDF

National Insurance bands and rates are some of the most confusing around – not least because things are different for employees, sole traders and limited company directors. National Insurance contributions (NICs) are usually calculated weekly, rather than annually. We’ve included both here.

2019/20 2020/21
Weekly Annually Weekly Annually
Lower Earnings Limit – Earnings below this limit will incur no NICs £118 £6,136 £120 £6,240
Primary Threshold – Earnings below this limit will incur no NICs £166 £8,632 £183 £9,500
Upper Earnings Limit – Earnings above the Primary Threshold and below the Upper Earnings Limit will be taxed at 12%. £962 £50,000 £962 £50,000
Any earnings above the Upper Earnings Limit are taxed at 2%

Back to top

2019/20 2020/21
Weekly Annually Weekly Annually
Secondary Threshold – Salary payments above this threshold will incur Employer NICs at 13.8%. £166 £8,632 £169 £8,788

As an employer, you may be eligible to claim Employment Allowance to reduce their Employer’s National Insurance bill. Our article explains what Employment Allowance is and if you can claim.

Back to top

We’ve written an article all about self-employed National Insurance, including examples of how to calculate your National Insurance liability.

2019/20 2020/21
Small profits threshold – Earnings below this threshold incur no NICs. £6,365 £6,475
Class 2 NICs – for those earning above the Small profits threshold £2.95 per week £3.05 per week
Lower Profits Limit – Earnings up to this limit incur only Class 2 NICs. Over this limit incurs Class 4 NICs. £8,632 £9,500
Upper Profits Limit – Earnings up to this limit incur:

  • Class 2 NICs
  • Class 4 NICs at 9% of the profit between the Lower Profits Limit and Upper Profits Limit.
£50,000 £50,000
Earnings above the Upper Profits Limit

Any earnings above this limit incur:

  • Class 2 NICs
  • Class 4 NICs at 9% of the profit between the Lower Profits Limit and Upper Profits Limit
  • Class 4 NICs at 2% of the profit above the Upper Profits Limit.
Over £50,000 Over £50,000

Back to top

Capital Gains Tax (CGT) is a tax on the profit made when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive. The tax rate you use depends on the total amount of your taxable income. Read our article “What is Capital Gains Tax” for more information.

There are complex rules around Capital Gains Tax so if you need more help please speak with an accountant.

2019/20 2020/21
Annual exemption from capital gains £12,000 £12,300
As a Basic Rate taxpayer Gains from other residential property 18% 18%
Gains from other chargeable assets 10% 10%
As a Higher Rate taxpayer Gains from other residential property 28% 28%
Gains from other chargeable assets 20% 20%
Entrepreneurs’ Relief
(The lifetime limit is £1 million for the 2020/21 tax year, reduced from £10 million in the 2019/20 tax year )
10% 10%

In the March 2020 budget, the Chancellor announced that the period allowed to pay any CGT on property sales over to HMRC will be reduced to 30 days from the date of sale. These changes take effect from 6th April 2020.

Back to top

Company tax rates

You can find out more about the taxes paid by companies in our “small business taxes” article.

2019/20 2020/21
Corporation Tax rate 19% 19%

Back to top

2019/20 2020/21
VAT Registration threshold – The level of revenue at which you must register for VAT £85,000 £85,000

Back to top

From 1st December 2020 no VAT will be payable on e-books and online newspapers, magazines and journals. Until then, the rate of VAT on these items remains at 20%.

2019/20 2020/21
Standard – The VAT rate applicable to most goods and services 20% 20%
Reduced rate – A lower rate applicable to certain goods and services 5% 5%
Zero rate – A rate applied to some goods and services (food, children’s clothes etc.).

Note: this is not the same as items which are exempt from VAT

0% 0%

Back to top

If you decide to use the Flat Rate VAT scheme (available to businesses with revenue of £150,000 or less) you must choose a business sector and use the applicable rate for all transactions where VAT applies. If you are unsure which sector your business operates in, speak to an accountant.

If turnover (inclusive of VAT) increases so that it exceeds £230,000 per annum you can no longer use the Flat Rate scheme and you’ll need to move to the Standard Rate scheme.

Remember if you’re a Limited Cost Trader you must use the 16.5% rate regardless of the business sector.

You can find a full list of Flat rate VAT schemes on our VAT registration explained article.

Back to top

HMRC’s approved mileage allowance payments (sometimes called AMAP) allow business mileage to be claimed as expenses at specific rates. The current rates are:

First 10,000 miles Over 10,000 miles
Car / van £0.45 £0.25
Motorcycle £0.24 £0.24
Bicycle £0.20 £0.20

Business Expenses - What can you claim?

Back to top

You can find out all about directors loan accounts in our handy Knowledge article.

2019/20 and 2020/21
If loaned amount exceeds £10,000 at any point during the company’s accounting period 2.5% nominal interest on the whole amount plus
Class 1A National Insurance contributions (13.8%), and may need to be reported on your P11DIf the loan is not repaid within 9 months of the accounting period end, the company pays extra Corporation Tax of 32.5%, repayable by HMRC when the loan is repaid to the company.

Back to top

Need accounting help?

Monitor the performance of your business at the click of a button, whenever you want and wherever you are, with a super-secure, cloud-based system.

Banner - What are the benefits of an online accountant?

Build your own online accountancy package

Join 11,000 clients who trust our advice, support, and leading accountancy software for their business. Choose exactly what accountancy support you need with our new tool and get a quote in 60 seconds.

Join Crunch Chorus:
The free community for the self-employed

You'll get access to a range of benefits, such as invoice software, jargon-free business guides, great networking opportunities, discounts, plus much more

Useful tools and resources

Business guides

From understanding expenses to starting a limited company, we've a range of jargon-free business guides for you to download and keep.

Invoicing software and templates

Create, send and store sole trader invoices in a snap with our free invoice software. You can also download a selection of invoice templates for all business types.

Take-home pay calculator

Use our Take-Home Pay Calculator to work out your true earnings and see if you could save money with a different company set up.

Need help with your accountancy?

Join 11,000 clients who trust our advice, support, and leading accountancy software for their business. All the support and advice you need, wherever you need it. Speak to an expert today on 0333 311 0800 to find out more about our bespoke packages.

    Find out more