The 2021/22 tax year began on 6th April 2021. This blog has been written to highlight the main changes affecting individuals and businesses. 

Personal Tax and allowances

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) though only a small increase of £70 for the year. Anyone individual earning anything below £12,570 is not liable to pay any tax for 2021-22.

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. The Personal Allowance is reduced by £1 for every £2 earned over £100,000.

The above are for the whole of the UK – except Scotland where the thresholds are slightly different. 

Dividend Allowance

There is no change to dividend tax rates or to the Dividend Tax Allowance for dividend income in the 2021-22 tax year. They remain the same as for the 2020-21 tax year. 

  • The tax-free dividend allowance is £2,000 – 0% tax 
  • Basic-rate taxpayers pay 7.5% on dividends
  • Higher-rate taxpayers pay 32.5% on dividends
  • Additional-rate taxpayers pay 38.1% on dividends.

Student Loans

From 6 April 2021

  • repayment threshold for pre-2012 (Plan 1) loans will rise to £19,895
  • repayment threshold for post-2012 (plan 2) loans will rise to £27,295 
  • repayment threshold for Postgraduate loans continues to be £21,000

Workplace pensions (auto-enrolment)

There are no changes to the minimum amount paid into an employee’s auto-enrolment workplace pension. Employee’s minimum contribution stays at 5% and the Employer’s at 3%. This means the total amount of employer and employee contributions remains a minimum of 8% of employee’s qualifying earnings.

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 this level until 2025-26

Corporation Tax

Tax payable on company profits remains at 19% for the 2021-22 tax year, but at the March 2021 budget, the Chancellor has announced plans for a rise in the rate of Corporation Tax to 25% from April 2023. 

From April 2023 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 earning profits over £250,000 will pay the main rate of 25% from April 2023.

VAT thresholds

Registration limit for Businesses exceeding the VAT taxable turnover is £85,000 and remains unchanged in 2021-22. Above this limit VAT registration is compulsory. These tax thresholds operate on a rolling 12-month period

  • 20% Standard rate applies to all VATable supplies 
  • 5% reduced rate : From 15th July 2020 to 30th September 2021, a reduced rate of 5% VAT will apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafes to support the pandemic impact. 

From 1st October 2021 to 31st March 2022 rate increases to 12.5%.

  • 0% rate: Applied to some goods and services, such as food or children’s clothing

Personal pensions

The tax-free amount you can pay into a personal pension remains at £40,000 for the 2021-22 tax year. Lifetime allowance for pension savings also remains at £1,073,100 and will be frozen until the year 2026. The lifetime allowance is the maximum amount of tax relieved pension savings that an individual can build up over their lifetime. 

The maximum tax-free lump sum that an individual can normally have is 25% of their pension rights subject to an overall maximum of 25% of the standard lifetime allowance

Hope this gave you some insight and for further queries please contact [email protected]

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