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19th April 2021

PERSONAL TAX

The personal allowance

The personal allowance has been increased by CPI (0.5%) for 2021/22 to £12,570, frozen for the tax years 2022/23 to 2025/26.

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. For 2021/22, there will be no personal allowance where adjusted net income exceeds £125,140.

The marriage allowance

The marriage allowance permits certain couples, where neither pays tax at more than the basic rate, to transfer £1,260 of their personal allowance to their spouse or civil partner.

Note

The marriage allowance reduces the recipient’s tax bill by up to £252 in the tax year (6 April to 5 April the next year). The marriage allowance was first introduced for 2015/16, and some couples are entitled to claim but have not yet done so. You can backdate your claim to include any tax year since 5 April 2017 that you were eligible for Marriage Allowance where the entitlement conditions are met.

Tax bands and rates

The basic tax rate remains at 20%, and the 40% band applies for taxable income over £50,270 for those who are entitled to the full personal allowance.

The Government announced that the basic rate band would be frozen at £37,700 for the tax years 2022/23 to 2025/26.

The table below shows the tax rates you pay in each band if you have a standard Personal Allowance of £12,570.

BandTaxable IncomeTax Rate
Personal AllowanceUp to £12,7500%
Basic Rate£12,571 to £50,27020%
Higher Rate£50,271 to £150,00040%
Additional Rateover £150,00045%

Scottish residents

The tax on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland from taxpayers resident elsewhere in the UK. The Scottish income tax rates and bands apply to income such as employment income, self-employed trade profits and property income.

The table shows 2021 to 2022 Scottish Income Tax rates you pay in each band if you have a standard Personal Allowance of £12,570. Anyone who earns over £125,140 does not get a Personal Allowance.

Tax BandTaxable IncomeScottish Tax Rate
Personal AllowanceUp to £12,7500%
Starter Rate£12,571 to £14,66719%
Basic Rate£14,668 to £25,29620%
Intermediate Rate£25,297 to £43,66221%
Higher Rate£43,663 to £150,00041%
Top Rateover £150,00046%

Welsh residents

From April 2019, the Welsh Government has had the right to vary the income tax rates payable by Welsh taxpayers. The UK government has reduced each of the three income tax rates paid by Welsh taxpayers by 10 pence. That 10p and any additional payments go to the Welsh government.

This means the tax payable by Welsh taxpayers is the same as that payable by English and Northern Irish taxpayers.

Tax on savings income

The Savings Allowance applies to savings income and income such as bank and building society interest. The available allowance in a tax year depends on the individual’s marginal rate of income tax.

Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers, the allowance is £500. No allowance is due to additional rate taxpayers.

Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income, less allocated allowances and reliefs) exceeds £5,000.

Tax on dividends

The first £2,000 of dividends is chargeable to tax at 0% (the Dividend Allowance). Dividends received above the allowance are taxed at the following rates:

  • 5% for basic rate taxpayers
  • 5% for higher rate taxpayers
  • 1% for additional rate taxpayers.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

Universal Credit

Universal Credit is a single payment made up of different amounts depending on an individual’s circumstances. There is no entitlement if an individual’s capital is worth more than £16,000. Shortly after the 2020 Budget, the Chancellor announced an increase in the Universal Credit standard allowance by £20 per week for one year.

The government is extending the temporary £20 per week increase for a further six months.

Universal Credit is replacing the following benefits:

  • Child Tax Credit
  • Housing Benefit
  • Income Support
  • income-based Jobseeker’s Allowance (JSA)
  • income-related Employment and Support Allowance (ESA)
  • Working Tax Credit

To find out more, please visit the government’s website by clicking here.

Child Tax Credit

If you already receive Child Tax Credit and either you or your partner earns between £50,000 and £60,000 a year before tax, you’ll have to pay a portion of your Child Benefit back in extra Income Tax.

Working Tax Credit

The government is making a one-off payment of £500 to eligible Working Tax Credit claimants to provide extra support over the next six months.

Pensions Lifetime Allowance

The lifetime limit sets the maximum figure for tax-relieved savings that individuals can build up over their lifetime.

Legislation will be introduced to remove the annual link to the CPI increase for the next five years.  This will maintain the standard Lifetime Allowance at £1,073,100 for tax years 2021/22 to 2025/26.

EMPLOYMENT

The Coronavirus Job Retention Scheme (JRS)

The current JRS scheme (extended until the end of April 2021) allows an employer to place an employee on furlough and apply for a grant to cover wage costs when an employee is on furlough.

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. They will need to fund employer National Insurance contributions (NICs) and the minimum employer automatic enrolment pension contributions.

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.

Off-payroll working in the private sector (IR35)

New tax rules apply for individuals who provide their personal services via an ‘intermediary’ to a medium or large business. The new rules apply to payments made for services provided on or after 6 April 2021.

The off-payroll working rules apply where an individual (the worker) provides their services through an intermediary (typically a personal service company) to another person or entity (the client). The client is required to determine a worker’s status and communicate that determination. Also, the fee-payer (usually the organisation paying the worker’s personal service company) needs to make deductions for income tax and NICs and pay any employer NICs.

The legislation uses an existing statutory definition within the Companies Act of a ‘small company’ to exempt small businesses from the new rules. A small company is one that meets two of these criteria:

  • a turnover of £10.2 million or less
  • having £5.1 million on the balance sheet or less
  • having 50 or fewer employees.

If the business receiving the individual’s work is not a company, it is only the turnover test that applies.

Note

The Status Determination Statement (SDS) is a key part of the status determination procedure. The client must provide the SDS to the worker and include not only the decision of the client but also the reasons underpinning it. The client must take ‘reasonable care’ in coming to its conclusion. If it doesn’t, the statement is not a valid SDS.

National Living Wage (NLW) and National Minimum Wage (NMW)

The National Living Wage is increased by 2.2% and will be extended to 23 and 24-year-olds for the first time. For workers aged under 23, the government has announced smaller increases in NMW in recognition of the risks to youth employment that the current economic situation poses.

From 1 April 2021, the new hourly rates of NLW and NMW are:

  • £8.91 for those 23 years old and over
  • £8.36 for 21-22-year-olds
  • £6.56 for 18-20-year-olds
  • £4.62 for under 18s
  • £4.30 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.

Van benefit charge nil-rating for zero-emission vans

From 6 April 2021, a nil rate of tax applies to zero-emission vans within the van benefit charge. In 2020/21, such vans had a van benefit charge at 80% of the standard flat rate of £3,490.

Note

A zero-emission van is a van that cannot in any circumstances emit CO2 emissions when driven.

BUSINESS

Coronavirus loan schemes

Budget 2021 announced a new loan scheme to be introduced to replace those coming to an end. From 6 April 2021, the Recovery Loan Scheme provides lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million to give them confidence in continuing to provide finance to UK businesses. The scheme is open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes.

Self-Employment Income Support Scheme (SEISS)

Budget 2021 has confirmed details of a fourth grant. This will be 80% of three months average trading profits to be claimed from late April 2021. Payment will be in a single instalment capped at £7,500 in total and will cover the period February to April 2021. The scheme has been extended to those who have filed a 2019/20 self-assessment tax return before 3 March 2021. This means that the newly self-employed from April 2019 now qualify subject to satisfying the other conditions.

A fifth and final grant was announced and can be claimed from late July 2021 to cover May to September 2021. A turnover test will determine this grant. Where the self-employed business turnover has fallen by 30%, the grant will be worth 80% of three months average trading profits capped at £7,500. People whose turnover has fallen by less than 30% will receive a 30% grant, capped at £2,850.

Worth noting that Self-Employment Income Support Scheme (SEISS) grants ARE taxable and will go on the 2020/21 SA tax return and taxed accordingly as income.

Business rates

Business rates have been devolved to Scotland, Northern Ireland and Wales. All four nations have introduced 100% business rates relief mainly aimed at retail, leisure and hospitality businesses.

Such businesses have not had to pay business rates from 1 April 2020 to 31 March 2021. There is now a continuation of 100% business rates relief for eligible retail, hospitality and leisure properties in England to 30 June 2021.

Corporation tax rates

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 corporate tax rate.

Note

The main rate of corporation tax has been 19% since 1 April 2017. The rate for the Financial Year beginning on 1 April 2020 was due to fall to 17%, but the Chancellor reversed this decision in Budget 2020.

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 is in 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 carryback has been extended from the current one-year entitlement to a period of three years, with losses being carried back against later years first.

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 is 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
  • the first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for a 6% special rate writing down allowances.

This relief is not available for unincorporated businesses.

First-year allowances for business cars from April 2021

100% first-year allowances for zero-emission cars and zero-emission goods vehicles have been extended by four years from April 2021.

CO2 emission thresholds have been amended from April 2021. These determine the rate of capital allowances available through which the capital expenditure for business cars can be written down.

The thresholds have been reduced from 50g/km to 0g/km for the purpose of the first-year allowances for low CO2 emission cars and from 110g/km to 50g/km for the purpose of writing down allowances (WDAs) for business cars.

Comment

The reduction in thresholds will mean that only business cars acquired with CO2 emissions of 0g/km will be eligible for first-year allowances. Ultra-low emission vehicles which currently qualify for first-year allowances if 50g/km or less will no longer qualify. They will be eligible for WDAs at the main rate (18%). Cars with CO2 emissions exceeding 50g/km will be eligible for WDAs at the special rate (6%).

Research and Development (R&D) tax relief

A cap on the amount of R&D tax credit that can be paid to a loss-making small or medium-sized enterprise (SME) has been introduced for accounting periods that commence on or after 1 April 2021.

Before introducing the cap, loss-making SMEs incurring qualifying expenditure on R&D activities are allowed to claim to surrender the unrelieved loss for a payable tax credit of up to 14.5%. For accounting periods commencing on or after 1 April 2021, payable tax credits are restricted to £20,000 plus three times the company’s relevant expenditure on workers.

CAPITAL TAXES

Capital gains tax (CGT) rates

There are changes to the current rates of CGT, which remains at 10%, to the extent that any income tax basic rate band is available and 20% thereafter. Higher rates of 18% and 28% apply for certain gains, mainly chargeable gains on residential properties except for any element that qualifies for Private Residence Relief.

Two specific types of disposal potentially qualify for a 10% rate up to a lifetime limit for each individual:

  • Business Asset Disposal Relief (BADR) (formerly known as Entrepreneurs’ Relief). This is targeted at directors and employees of companies who own at least 5% of the ordinary share capital in the company, provided other minimum criteria are also met, and the owners of unincorporated businesses.
  • Investors’ Relief. The main beneficiaries of this relief are external investors in unquoted trading companies who have newly-subscribed shares. The lifetime limit for BADR was reduced from £10 million to £1 million for BADR qualifying disposals made on or after 11 March 2020. Investors’ Relief continues to have a lifetime limit of £10 million.

The CGT annual exemption will be maintained at £12,300 for 2021/22 and up to and including 2025/26.

Inheritance tax (IHT) nil rate bands

The nil rate band has been frozen at £325,000 since 2009, and this will now continue up to 5 April 2026. An additional nil rate band, called the ‘residence nil rate band’ (RNRB), which has been increased in stages and is now £175,000 for deaths, is also frozen at the current level until 5 April 2026. A taper reduces the amount of the RNRB by £1 for every £2 that the ‘net’ value of the death estate is more than £2 million. Net value is after deducting permitted liabilities but before exemptions and reliefs. This taper will also be maintained at the current level.

 

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