New Tax Year – Tax Changes 6 April 2021

The 2021/22 tax year began on the 6^th of April 2021. In this article, you will find the main changes affecting individuals and businesses.

 Personal Tax, thresholds, and allowances:

The personal allowance is 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 be frozen to 2026.

 Tax rates and threshold for the UK ( excluding Scotland):

Basic Rate Tax-the lowest level of Income Tax paid above the Personal Allowance.

• TAX YEAR 2021/22 –20% on income between £12,571 and £50,270 (you pay tax on £37,700)
• TAX YEAR 2020/21- 20% on income between 12,500 and £50,000 (you pay tax on £37,500)

Higher Rate Tax- The middle tier of Income Tax

• TAX YEAR 2021/22- 40% on income between £50,271 and £150,000
• TAX YEAR 2020/21- 40% on income between £50,000 and £150,000

Additional Rate Tax-The top rate of Income Tax for high earners

• TAX YEAR 2021/22- 45% on income above £150,000
• TAX YEAR 2020/21- 45% on income above £150,000

 Directory Tax efficient salary recommendations:

To maximise your tax efficiency as a company Director and Shareholder in the2021/22 tax year, we recommend your company should pay you a salary of £8,840 and dividends of up to £41,430.

This means you have no other income and allows you to use the entire basic rate band of tax, where you pay 20% tax. For £47,592.50 in take-home pay, the gross personal tax bill will be £2,677.50. If you take more income in dividends you will pay tax on these at a rate of 32.5% as a higher rate taxpayer.

 Dividends Allowance:

For the 2021/22 tax year, the Tax-Free Dividend Allowance remains at £2,000. Dividend tax rates have not changed, but the thresholds have changed to match 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% on dividends
• Additional rate taxpayers pay 38.1% on dividends

 National Minimum Wage and National Living Wage

While not strictly a tax year change, the National Minimum Wage and ‘National Living Wage’ amounts will increase to £8.91 per hour on April 1, 2021, and the minimum wage age will drop from 25 to 23. Your employees’ minimum hourly rate is determined by their age and whether they are apprentices.

 Company Cars, Vans and Fuel Benefit:

• Company Cars

The previously announced increases to benefit in kind tax rates for company cars for the 2021/22 tax year will come into force as planned. Cars first registered after April 5^th, 2020 will see their benefit change 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 6^th of April 2021, the percentage applied to the list price of the car will increase based on CO2 emissions published by the Vehicle Certification Agency. HMRC has published a ready reckoner you can use to calculate your company tax car.

• Company cars 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.

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

It 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 calculation of the fuel benefit for automobiles is a little more complicated.

Each tax year, a director/employee who receives a company car and free fuel from his employer is taxed on the cash equivalent value of the benefit. Each year, the cash equivalent amount is fixed, and on April 6, 2021, it will increase to £24,600 (from £24,500).

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

 Student 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)

If you’re a director who receives a salary and dividends from your company and you’re repaying a student loan, keep in mind that the repayment threshold 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.

 Postgraduate Master’s Loan and Postgraduate Doctoral Loan

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.

 Corporation Tax

The headline rate of Corporation Tax on company profits remains at 19 percent for the 2021/22 tax year, but the Chancellor announced plans to raise it to 25 percent from April 2023 in his March 2021 budget. From that date forward, a new small profits rate of 19 percent will apply to businesses with profits of less than £50,000, with the rate gradually increasing as profits rise. 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.

 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.

 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.

 Stamp Duty Land Tax

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

 Mortgage Guarantee Scheme

In April 2021, a new mortgage guarantee programme will begin. This scheme will provide reassurance to lenders across the UK who offer mortgages to people who have a 5% deposit on homes worth up to £600,000. If they wish, all buyers will be able to lock in their initial mortgage rate for at least five years under the scheme. 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.