National Insurance Contributions

National Insurance Contributions (Table D)

Class 1 (Employees) Employee Employer
Main NIC rate 12% 13.8%
No NIC on first £184pw £170pw
Main rate* charged up to £967pw no limit
2% rate on earnings above £967pw N/A
Employment allowance per qualifying business N/A £4,000

*Nil rate of employer NIC for employees under the age of 21 and apprentices under 25, up to £967pw.

Employer contributions (at 13.8%) are also due on most taxable benefits (Class 1A) and on tax paid on an employee’s behalf under a PAYE settlement agreement (Class 1B).

Class 2 (Self employed)

Flat rate per week £3.05
Small profits threshold £6,515

Class 3 (Voluntary)

Flat rate per week £15.40

Class 4 (Self employed)

On profits £9,568 – £50,270 9%
On profits over £50,270 2%

 

Income Tax Rates and Allowances

Income Tax Rates and Allowances (Table A)

Main allowances 2021/22 2020/21
Personal Allowance (PA)*† £12,570 £12,500
Blind Person’s Allowance 2,520 2,500
Rent a room relief § 7,500 7,500
Trading income § 1,000 1,000
Property income § 1,000 1,000

*PA will be withdrawn at £1 for every £2 by which ‘adjusted income’ exceeds £100,000. There will therefore be no allowance given if adjusted income is £125,140 or more.

†£1,260 of the PA can be transferred to a spouse or civil partner who is no more than a basic rate taxpayer, where both spouses were born after 5 April 1935.

§ If gross income exceeds it, the limit may be deducted instead of actual expenses.

Rate Bands 2021/22 2020/21
Basic Rate Band (BRB) £37,700 £37,500
Higher Rate Band (HRB) 37,701-150,000 37,501-150,000
Additional rate over 150,000 over 150,000
Personal Savings Allowance (PSA)
– Basic rate taxpayer 1,000 1,000
– Higher rate taxpayer 500 500
Dividend Allowance (DA) 2,000 2,000

BRB and additional rate threshold are increased by personal pension contributions (up to permitted limit) and Gift Aid donations.

Tax Rates 2021/22 and 2020/21
Rates differ for General, Savings and Dividend income within each band:
G S D
Basic 20% 20% 7.5%
Higher 40% 40% 32.5%
Additional 45% 45% 38.1%

General income (salary, pensions, business profits, rent) usually uses personal allowance, basic rate and higher rate bands before savings income (interest). To the extent that savings income falls in the first £5,000 of the basic rate band, it is taxed at nil rather than 20%.

The PSA will tax interest at nil, where it would otherwise be taxable at 20% or 40%.

Dividends are normally taxed as the ‘top slice’ of income. The DA taxes the first £2,000 of dividend income at nil, rather than the rate that would otherwise apply.

High Income Child Benefit Charge (HICBC)

1% of child benefit for each £100 of adjusted net income between £50,000 and £60,000.

Income Tax – Scotland Rate 2021/22 2020/21
Starter Rate 19% £2,097 £2,085
Basic Rate 20% 2,098 – 12,726 2,086 – 12,658
Intermediate Rate 21% 12,727 – 31,092 12,659 – 30,930
Higher Rate 41% 31,093 – 150,000 30,931 – 150,000
Top Rate 46% over 150,000 over 150,000

The Scottish rates and bands do not apply for savings and dividend income, which are taxed at normal UK rates.

Remittance basis charge 2021/22 2020/21
For non-UK domiciled individuals who have been UK resident in at least:
7 of the preceding 9 tax years £30,000 £30,000
12 of the preceding 14 tax years 60,000 60,000
15 of the preceding 20 tax years Deemed to be UK domiciled for tax purposes

 

Registered Pensions (Table B)

2021/22 2020/21
Lifetime allowance (LA) £1,073,100 £1,073,100
Annual allowance (AA) 40,000 40,000

Annual relievable pension inputs are the higher of earnings (capped at AA) or £3,600.

The AA is usually reduced by £1 for every £2 by which relevant income exceeds £240,000, down to a minimum AA of £4,000.

The AA can also be reduced to £4,000, where certain pension drawings have been made.

Car and Fuel Benefits (Table C)

Cars

Taxable benefit: List price multiplied by chargeable percentage.

2021/22 percentage for petrol cars first registered
CO2 emissions
g/km
Electric range
Miles
Pre 06.04.2020
%
Post 05.04.2020
%
0 N/A 1 1
1-50 >130 2 1
1-50 70 – 129 5 4
1-50 40 – 69 8 7
1-50 30 – 39 12 11
1-50 <30 14 13
51-54 N/A 15 14

Then a further 1% for each 5g/km CO2 emissions, up to a maximum of 37%. Diesel cars that are not RDE2 standard suffer a 4% supplement on the above figures but are still capped at 37%.

Car Fuel

Where employer provides fuel for private motoring in an employer-owned car, CO2-based percentage from above table multiplied by £24,600 (2020/21 £24,500).

 

Other Measures

 

Freeports

The Budget outlines the introduction of ‘Freeports’, areas in which a number of tax and other incentives will operate to encourage trade. Eight areas in England have been announced, with discussions in progress to extend the concept in the other nations of the United Kingdom. The enhanced tax reliefs will include 10% Structures and Buildings Allowances (instead of 3%), 100% First Year Allowances for plant and machinery, full relief from Stamp Duty Land Tax, full Business Rates relief, and relief from Employer National Insurance Contributions. The reliefs will depend on designation as a ‘tax site’ within a Freeport and will run until 30 September 2026.

The English Freeports announced so far are East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames. They are expected to start operating in late 2021.

Compliance

The Budget includes several mentions of increased efforts to crack down on avoidance, evasion and non-compliance. The Government intends to invest £180 million in additional resources and new technology for HMRC in order to bring in £1.6 billion of additional tax revenue between now and 2025/26. The benefits are supposed to include ‘enabling taxpayers to more easily access tax services and make the collection of tax and payments to taxpayers easier’, but the overall effect is clearly intended to raise revenue.

£100 million will also be invested in a Taxpayer Protection Taskforce of 1,265 HMRC staff to combat fraud within COVID-19 support packages. HMRC’s ability to distribute money has been one of the success stories of the pandemic, but giving the cash to people who need it has involved taking the risk that the system can be exploited. They are now going to try to find the people who took advantage.

 

Stamp Duty Land Tax

The threshold for charging SDLT on residential property in England was temporarily raised to £500,000, with the intention that transactions had to be completed by 31 March 2021. This has now been extended to 30 June 2021, and for transactions between 1 July and 30 September 2021 the threshold will be £250,000. It will revert to the normal level of £125,000 from 1 October, and the normal 2% charge will apply between £125,000 and £250,000.

The Welsh Parliament has also extended the £250,000 nil rate threshold for Land Transaction Tax to 30 June 2021.

Foreign resident buyers

With effect from 1 April 2021, foreign resident purchasers of residential property in England and Northern Ireland will be subject to a 2% surcharge on the Stamp Duty Land Tax they would otherwise pay. This is intended to reduce house price inflation and make property available for first-time buyers.

 

Value Added Tax

The VAT registration and deregistration thresholds will remain frozen at their present levels of £85,000 and £83,000 until 31 March 2024. This will tend to require more businesses to register for the tax as they grow, and therefore represents a small tax-raising measure.

Reduced rate

To help support businesses heavily impacted by the pandemic, the rate of VAT on most supplies by hospitality, leisure and entertainment businesses was cut from 20% to 5% in July 2020. This was initially intended to expire in January 2021, but that was extended to 31 March, and it has now been further extended to 30 September 2021. An intermediate rate of 12.5% will apply for qualifying supplies from 1 October 2021 to 31 March 2022, after which the standard 20% rate will apply again.

HMRC says that there are no plans to introduce ‘anti-forestalling rules’ to counter the VAT saving enjoyed by someone who pays a deposit before the rate goes back up on present plans, that will lock in the lower rate of VAT to the extent that the supply is paid for before 30 September, even if the actual supply takes place later.

Payment of deferred VAT

Businesses could defer the payment of VAT that fell due between March and June 2020. Initially the deferred amount was to be paid in full by 31 March 2021, but businesses can now apply to pay it by interest-free instalments up to 31 March 2022. Applications must be made online by 21 June 2021, but if the scheme is applied for earlier, the payments can be spread over a longer period.

Default surcharge

HMRC has announced that the long-awaited reform of the system of penalties for late payment of tax will be implemented over the next three years, starting with the replacement of default surcharge for accounting periods starting from 1 April 2022. Many of those who have fallen foul of default surcharge regard it as unfair and arbitrary, so it is to be hoped that what replaces it will be a better system. In the meantime, any warnings that default surcharge might be levied should still be taken very seriously.

Making Tax Digital

The Budget also confirms the intention to bring all VAT-registered businesses, including those currently trading below the registration threshold, within the Making Tax Digital reporting system with effect from 1 April 2022.

 

Business Tax

Carry back of losses

Companies and unincorporated businesses can normally set their trading losses against profits of the current or the previous 12-month period, or else carry them forward against future profits. Where a business has made a large loss because of the pandemic, or makes losses in two successive periods, the 12-month carry back may not be enough to relieve the whole amount. The Budget has extended the normal 12-month carry-back to three years, for both unincorporated businesses and companies, for trading losses of 2020/21 and 2021/22. For example, a loss of 2020/21 can be carried back against pre-pandemic profits of 2019/20, 2018/19 and 2017/18; without the extension, the claim could only have been made against 2019/20.

There is a limit on the total amount to be carried back to the second and third earlier year of £2 million in each year of loss for unincorporated businesses and companies that are not part of a corporate group. A group with companies that have capacity to carry back losses in excess of £200,000 will have to apportion the cap between its member companies. The way in which this ‘group cap’ will operate will be announced in due course.

Corporation Tax rates

The Corporation Tax rate will remain 19% until 31 March 2023. It will then increase to 25% for companies with profits over £250,000. Since 1 April 2015, all corporate profits have been taxed at the same rate; the ‘small profits rate’ that was familiar before that will be reintroduced, at 19% for companies with profits up to £50,000, in April 2023. Between £50,000 and £250,000 there will be a tapering calculation that produces an effective marginal rate of 26.5%. The limits will be divided between associated companies under common control.

The two measures described above and below, which allow losses to be carried back for immediate relief rather than carried forward and give enhanced relief for investment in plant up to 31 March 2023, will help with cash flow; however, it should be borne in mind that both of them will give rise to tax relief against liabilities charged at 19%, and will tend to increase later profits that may be taxed at 25%. Such a sharp increase in a tax rate gives rise to planning opportunities and pitfalls to avoid.

‘Super-deduction’ for plant and machinery

For qualifying expenditure on plant and machinery (P&M) contracted for from 3 March 2021 and incurred from 1 April 2021 to 31 March 2023, companies can claim:

  • a super-deduction, providing allowances of 130% on new P&M investment that would qualify for 18% writing down allowances (WDAs) in the main Capital Allowance pool;
  • a first-year allowance (FYA) of 50% on new plant and machinery investment that would qualify for 6% WDAs in the special rate pool.

The rate of the super-deduction will require apportioning if an accounting period straddles 1 April 2023.

Cars are excluded (with certain exceptions, such as dual-control vehicles used by driving instructors), as are contracts entered into prior to 3 March 2021, even if expenditure is incurred on or after 1 April 2021.

Expenditure incurred under a hire purchase or similar contract must meet additional conditions to qualify for these extra reliefs.

Where the super-deduction has been claimed, there will be a proportionate increase in the proceeds of sale for Capital Allowances purposes. For both the super-deduction and FYA, the proceeds will be treated as balancing charges (i.e. immediately taxable profits) rather than being deducted from pool expenditure.

Annual Investment Allowance

Companies and unincorporated businesses can continue to claim the 100% Annual Investment Allowance on qualifying expenditure up to £1 million until 31 December 2021, subject to transitional rules where accounting periods straddle that date. This may produce more tax relief for companies than the 50% FYA available for special rate expenditure, where it is incurred between 1 April 2021 and 31 December 2021.

Research and Development (R&D)

Small or medium-sized companies conducting qualifying research and development can claim an enhanced deduction of 230% (i.e. £230 for each £100 of qualifying expenditure). Where this produces a loss, it can be surrendered for a payable tax credit of 14.5%.

For accounting periods beginning on or after 1 April 2021, the amount of payable credit that can be claimed is capped at £20,000 plus three times the company’s PAYE and NIC liabilities for the period. This definition also includes some PAYE and NIC liabilities of connected persons doing subcontracted R&D for, or providing workers to, the company.

There are no changes to the R&D Expenditure Credit (RDEC) rules for large companies. However, the Government has announced a review of R&D tax reliefs, with a consultation published alongside the Budget. The intentions are that the UK should remain a competitive location for cutting edge research, that the reliefs continue to be fit for purpose and that taxpayer money is effectively targeted.

 

Inheritance Tax

The IHT nil rate band was increased to £325,000 on 6 April 2009, and previous Budgets had fixed it at that level until the end of 2020/21. This Budget has further fixed it until the end of 2025/26. Holding the threshold at the same amount for 17 years will bring far more people into the scope of the tax. However, the introduction of the ‘residential nil rate band enhancement’ on death transfers can reduce the impact where it applies. From 6 April 2020, a married couple are able to leave up to £1 million free of IHT to their direct descendants (£325,000 plus £175,000 from each parent), but the rules are complicated, and the prospect of the nil rate band being fixed for the next 5 years increases the importance of proper IHT planning.

 

Savings and Pensions

ISA limits

The investment limits for 2021/22 remain £20,000 for a standard adult ISA (within which £4,000 may be in a Lifetime ISA), and £9,000 for a Junior ISA or Child Trust Fund.

Pension contributions (Table B)

There has been speculation that the Chancellor might reduce pension tax relief, which costs the Exchequer a great deal. There were no significant announcements of reform in the Budget, although a number of consultations are expected on 23 March that might deal with this. The only measure announced related to the Lifetime Allowance (LA), which is the maximum amount that a person can save in tax-advantaged pension schemes before extra tax charges arise on drawing benefits. The value of benefits is measured against the LA when benefits are first taken from a pension, and on some other occasions, including the individual’s 75th birthday. The LA is frozen at its 2020/21 level of £1,073,100 until the end of 2025/26. When LA was first introduced in 2006, it was £1,800,000; fixing it at this level will mean that many more people will have to consider the tax charges when they draw their pensions over the next few years.

 

National Insurance Contributions

Thresholds and rates (Table D)

There have been small increases in the thresholds above which employer’s and employee’s National Insurance Contributions become payable. The upper limits for employee contributions remain aligned with the point at which 40% Income Tax is payable (£50,270 per year, or £967 per week).

The upper limit will be frozen, in common with the personal allowance and basic rate band, until the end of 2025/26. Raising the upper limit increases the amount of NIC payable – salary below that level is charged at 12%, but above that level it is charged at 2%. The Budget documents state that decisions will be taken each year on the lower threshold, which is not being fixed in advance.

 

Employees

COVID tests and working from home

A number of relaxations of the rules relating to the pandemic, introduced in 2020/21, will continue into 2021/22. These include exemptions from taxable benefit charges on reimbursement of COVID tests by employers and the provision of relevant equipment to enable employees to work from home. The conditions for the Cycle to Work scheme, which require a bicycle to be mainly used for commuting or work journeys to avoid an Income Tax charge, have also been relaxed for employees who were provided with a bicycle by their employer before 20 December 2020.

Company cars and fuel (Table C)

The basis for taxing company cars and fuel provided for private use is set out in the Table. No changes were made to the rates announced for car benefits in previous years, so cars first registered after 5 April 2020 will see their benefit charge rise by one percentage point. Note that fully electric cars gave rise to no tax charge in 2020/21, but there will be a charge on 1% of their list price in 2021/22, increasing to 2% in 2022/23.

There have also been changes to the taxable figures for vans with private use, including removing the taxable benefit on zero-emission vans with effect from 6 April 2021.

‘Off payroll’ working

HMRC has been concerned about individuals working through personal service companies (PSCs) for two decades: they regard this as a way of avoiding PAYE and Class 1 NIC where ‘in reality’ (in HMRC’s view) the individual is acting as an employee.

The ‘IR35’ rules require PSCs to pay PAYE and NIC on income from engagements that are effectively employments. From 6 April 2017, where the individual behind the PSC works in the public sector, the responsibility for paying this tax was transferred to the person paying the PSC, and the responsibility for deciding ‘what is effectively employment’ was imposed on the public sector engager. HMRC is convinced that this has reduced non-compliance and intended to extend the same rules to large and medium-sized engagers in the private sector from April 2020. Because of the pandemic, this was delayed to 6 April 2021. Only technical amendments to the rules were announced in the Budget, so this will be introduced as planned.

This is a very significant and potentially contentious change for all those who work through, and those who contract with, PSCs. It will be important to understand the decisions that have to be made, who has the responsibility for taking them, and what to do if the parties to a contract do not agree about its status.

Enterprise Management Incentives

EMI scheme participants must meet a minimum working time commitment of either 25 hours per week or 75% of total working time, subject to a small list of exceptions. Due to the COVID-19 pandemic, many workers are on reduced hours or furlough and would therefore break the condition.

A time-limited easement of this rule, running from 19 March 2020 until 5 April 2022, applies where employees have not met the working time requirement as a result of coronavirus. It ensures that participants are not forced to exercise their options earlier than planned and also guarantees that participants can be granted qualifying options during the pandemic.