AMCI Associates, Birmingham Accountants Guide for 2021 Budget

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Budget 2021: tax rates and allowances

 

      
 
  2021/22 2020/21  
  £ £  
Income tax rates: England, Wales & Northern Ireland
(non-dividend income) (note 1)		      
0% starting rate for savings only Up to 5,000 Up to 5,000  
20% basic rate tax 12,571-50,270 12,501-50,000  
40% higher rate tax 50,271-150,000 50,001-150,000  
45% additional rate tax Above 150,000 Above 150,000  
Note 1: Welsh income tax rates and thresholds are subject to parliamentary approval, however the Welsh Government has made a commitment not to raise Welsh Rates of Income Tax. Therefore, Welsh taxpayers will continue to pay the same rates as their English and Northern Irish counterparts.

TheIncome tax bands will remain frozen until tax year 2025-26.

  
Scottish rates of income tax (non-dividend income) (note 2)  
19% starting rate 12,571-14,667 12,501-14,585  
20% basic rate tax 14,668-25,296 14,586-25,158  
21% intermediate rate tax 25,297-43,662 25,159-43,430  
41% higher rate tax 43,663-150,000 43,431-150,000  
46% top rate Above150,000 Above150,000  
Note 2: Scottish taxpayers pay the same tax as the rest of the UK on dividends and savings interest. Scottish income tax rates and thresholds are subject to parliamentary approval.  
  2021/22 2020/21  
Income tax rates (dividend income)    
Dividend allowance £2,000 £2,000  
Dividend ordinary rate (for dividends within basic rate band) 7.50% 7.50%  
Dividend upper rate (for dividends within higher rate band) 32.50% 32.50%  
Dividend additional rate (for dividends above higher rate band) 38.10% 38.10%  
Child benefit/guardian’s allowance rates (notes 3 & 4)      
Higher rate (eldest or only child) (per week) £21.15  £21.05  
Other children £14.00  £13.95  
Guardian’s allowance per week £18.00  £17.90  
Note 3: An income tax charge will apply to taxpayers with ‘adjusted net income’ exceeding £50,000 in a tax year, when child benefit is also received by them or their partner. The charge will reduce the financial benefit of receiving child benefit for those with income between £50,000 and £60,000 and remove it completely for taxpayers with income above £60,000.

Note 4: From January 2021,no child benefit payments are made in respect of children living overseas.This will apply to EEA migrants arriving in the UK under the new immigration system.

  
Personal allowances  £ £   
Personal allowance (note 5) 12,570 12,500  
Dividend allowance 2,000 2,000  
Maximum married couple’s allowance for those born before 6 April 1935 (note 6) 9,125 9,075  
Married couple’s allowance – minimum amount 3,530 3,510  
Micro entrepreneur’s allowance: individuals making property or trading incomes below the level of the allowance will no longer need to declare or pay tax, while those whose income exceeds the allowance have the choice of simply deducting the allowance instead of calculating their exact expenses or calculating their profits in the normal manner Allowance:
1,000
each		  Allowance: 1,000
each		  
Income limit for personal allowance (note 7) 100,000  100,000  
Income limit for married couple’s allowance: born before 6 April 1935 30,400  30,200  
Blind person’s allowance 2,520  2,500  
Rent-a-room relief 7,500  7,500  
Transferable/shareable tax allowance for married couples and civil partners (note 8) 1,260 1,250  
  2021/22 2020/21  
  £ £  
Personal savings allowance for basic rate taxpayers 1,000  1,000  
Personal savings allowance for higher rate taxpayers 500  500  
Personal savings allowance for additional rate taxpayers 0 0  
Note 5: From 2016/17 onwards, all individuals are entitled to the same personal allowance, regardless of the individual’s date of birth. This allowance is subject to the £100,000 income limit which applies regardless of the individual’s date of birth.  
Note 6: This allowance is reduced by £1 for every £2 of income in excess of the income limit, but married couple’s allowance will not reduce below £3,530.  
Note 7: Personal allowances are subject to the £100,000 income limit, which applies regardless of the individual’s date of birth. The individual’s personal allowance is reduced where their income is above this limit. The allowance is reduced by £1 for every £2 above the limit, down to zero.  
Note 8: This allowance is available to married couples and civil partners who are not in receipt of married couple’s allowance. A spouse or civil partner who is not liable to income tax, or not liable at the higher or additional rates, can transfer this amount of their unused personal allowance to their spouse or civil partner. The recipient must not be liable to income tax at the higher or additional rates.

If the couple marry or register a civil partnership, they will get the allowance on a pro-rata basis for the rest of that tax year. If one of them dies or there is a divorce or separation, the allowance continues until the end of the tax year.

 

  
National insurance    
Lower earnings limit, primary class 1 (per week) £120  £120  
Upper earnings limit, primary class 1 (per week) £967  £962  
Apprentice upper secondary threshold (AUST) for under 21s/25s £967  £962  
Primary threshold (per week) £184 £183  
Secondary threshold (per week) £170  £169  
Employment allowance (per year/employer) (note 9) £4,000 £4,000  
Employee’s primary class 1 rate between primary threshold and upper earnings limit 12%  12%  
Employee’s primary class 1 rate above upper earnings limit 2%  2%  
Married woman’s reduced rate between primary threshold and upper earnings limit 5.85%  5.85%  
Married woman’s rate above upper earnings limit 2%  2%  
Employer’s secondary class 1 rate above secondary threshold 13.80%  13.80%  
  2021/22 2020/21  
Class 2 rate (per week where profits are above small profits threshold)  

£3.05

 £3.05  
Class 2 small profits threshold (per year) £6,515 £6,475  
Special class 2 rate for share fishermen (per week) £3.70  £3.70  
Special class 2 rate for volunteer development workers £6.00  £6.00  
Class 3 voluntary rate (per week) £15.40  £15.30  
Class 4 lower profits limit £9,568  £9,500  
Class 4 upper profits limit £50,270  £50,000  
Class 4 rate between lower profits limit and upper profits limit 9.00%  9.00%  
Class 4 rate above upper profits limit 2.00%  2.00%  
Note 9: From April 2020, this will be limited to employers with an employer NIC bill below £100,000 in the previous tax year.

Any deemed payments made to off-payroll workers do not count towards the £100,000 employers (secondary) class 1 NICs total. You cannot claim employment allowance for these workers.

Employment allowance cannot be claimed for off-payroll workers.

 
Pensions  £  £  
Annual allowance (note 10) 40,000 40,000  
Lifetime allowance (note 11) 1,073,100  1,073,100  
Money purchase annual allowance (note 12) 4,000  4,000  
 

Note 10:The annual allowance is a limit to the total amount of contributions that can be paid to a defined contribution pension scheme and the total amount of benefits that you can build up in a defined benefit pension scheme each year, for tax relief purposes.

Since 6 April 2016, individuals with a high income have had a tapered annual allowance, where for every £2 of adjusted income over a threshold, an individual’s annual allowance is reduced by £1. From 6 April 2020, the Tapered Annual Allowance applies for individuals with ‘threshold income’ of over £200,000, and ‘adjusted income’ of over £240,000. The annual allowance will be £4,000 for individuals with total adjusted income (including pension accrual) over £312,000.

From April 2021, the annual allowance for individuals with total income (including pension accrual) of over £312,000 will be £4,000.

Note 11: The lifetime allowance will remain same at the current level of £1,073,100 until April 2026.

Note 12: The annual allowance is currently capped at £40,000, although a lower limit of £4,000 may apply if you have already started drawing a pension.

 

  
  2021/22 2020/21  
Reliefs and incentives      
Enterprise Investment Scheme (EIS) – maximum (note 13) £1,000,000 £1,000,000  
Venture Capital Trust (VCT) – maximum £200,000 £200,000  
Enterprise Management Incentive Scheme (EMI) – employee limit up to the value of £250,000 in athree-year period £250,000 £250,000  
Seed Enterprise Investment Scheme (SEIS) – maximum (note 14) £100,000 £100,000  
Social Investment Tax Relief (SITR) – maximum £1,000,000 £1,000,000  
Income tax relief on EIS schemes 30% 30%  
Income tax relief on VCT schemes 30% 30%  
Income tax relief on SEIS schemes 50% 50%  
Income tax relief on SITR schemes 30% 30%  
Note 13: From 6 April 2018, the annual limit is doubled to £2m, provided that any amount over £1m is invested in one or more knowledge-intensive companies.

Note 14: Capital gains tax reinvestment relief may also be available for investments made in 2018/19 on 50% of the amount invested.

  
Individual Savings Account (ISA):  £  £  
ISA (NISA) annual limit 20,000 20,000  
Junior ISA investment annual limit – under 18, living in the UK 9,000 9,000  
Child Trust Fund annual limit 9,000 9,000  
Lifetime ISA annual limit (note 15) 4,000 4,000  
Note 15: To open a Lifetime ISA you must be 18 or over but under 40. Contributions can be made until age 50. The government will add a 25% bonus to the savings, up to a maximum of £1,000 per year. The lifetime ISA limit of £4,000 counts towards the annual ISA limit.  
Capital gains tax 2021/22 2020/21  
Rate      
Basic rate tax payer  10%  10%  
Higher rate tax payer  20%  20%  
Gain on sale of residential property  
Basic rate tax payer 18% 18%  
Higher rate tax payer 28% 28%  
  2021/22 2020/21  
Annual exemption – individuals / trusts for disabled persons (note 16) £12,300 £12,300  
Annual exemption – other trusts £6,150 £6,150  
Business Assets Disposal Relief lifetime limit (note 17) £1,000,000 £1,000,000  
Investors’ Relief lifetime limit £10,000,000 £10,000,000  
Entrepreneurs’/Investors’rate 10% 10%  
Chattels exemption £6,000 £6,000  
Note 16: Annual exemption of £12,300 is frozen until tax year 2025-26.

Note 17: Business Assets Disposal Relief (formerly Entrepreneurs’ Relief) lifetime limit reduced from £10m to £1m for disposals made on or after 11 March 2020.

  
Inheritance tax 2021/22 2020/21  
Single person’s nil-rate band £1 – £325,000 £1 – £325,000  
Single person’s 40% band over £325,000 over £325,000  
Residence nil-rate band (RNRB) – maximum (note 18) £175,000 £175,000  
Reduced rate (note 19) 36% 36%  
IHT rate (for chargeable lifetime transfers) 20% 20%  
Married couples or civil partnerships allowance nil-rate band £650,000 £650,000  
Gifts to charities Exempt Exempt  
Small gifts to same person £250 £250  
General gifts – annual exemption £3,000 £3,000  
Wedding gifts to children £5,000 £5,000  
Wedding gifts to grandchildren £2,500 £2,500  
Wedding gifts to any other person £1,000 £1,000  
Note 18: The RNRB is available in respect of a main residence given away to children (including adopted, foster or stepchildren). Any unused nil-rate band transfers to the deceased’s spouse or civil partner, even where death predates the availability of the additional threshold. It applies in addition to the existing nil-rate band (NRB) or threshold (currently £325,000) if the individual and estate meet the qualifying conditions.

Note 19: The estate can pay inheritance tax at a reduced rate of 36% on some assets if you leave 10% or more of the net value to charity in your will.

  
Business Property Relief 2021/22 2020/21  
Business or interest in a business and transfersof unquoted shareholdings  100%  100%  
 Taxation of trusts 2021/22 2020/21  
Accumulation or discretionary trusts:      
Trust income up to £1,000 – dividend type income (note 20) 7.50% 7.50%  
Trust income up to £1,000 – all other income 20% 20%  
Trust income over £1,000 – dividend type income (note 20) 38.10% 38.10%  
Trust income over £1,000 – all other income 45% 45%  
Interest in possession trusts:      
Dividend type income 7.50% 7.50%  
All other income 20% 20%  
Note 20: Trustees do not qualify for the dividend allowance. This means trustees pay tax on all dividends depending on the tax band they fall within.  
Corporation tax      
All profits and gains (excluding determination agreements and diverted profits) (note 21) 19% 19%  
S.455 tax on loans made by close companies to participators 32.50% 32.50%  
Note 21: Corporation tax rate will remain at 19% until March 2023. From April 2023, the main rate will increase to 25% for business profits made by the company over £250,000. A small profits rate (SPR) will also be introduced for companies with profits of £50,000 or less so that they will continue to pay Corporation Tax at 19%. 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 Corporation Tax rate.  
Capital allowances      
Main writing-down allowance (reducing balance) 18% 18%  
Special rate writing-down allowance (reducing balance) 6% 6%  
Structures and buildings allowance (SBA) 3% 3%  
Motor cars if CO2 > 50g/km but does not exceed 110g/km) 6% 18%  
Motor cars if CO2 > 110g/km 6% 6%  
FYA – New and unused motor cars if CO2 emissions are 50 g/km or less (or car is electric) (note 22) 100% 100%  
Small pool write-off where WDV is £1,000 or less 100% 100%  
First-year allowances for electric charge points (note 23) 100% 100%  
Annual investment allowance (AIA) (note 24) £1,000,000 £1,000,000  
Annual investment allowance rate 100% 100%  
Note 22: From April 2021, the thresholds for FYA will be reduced from 50g/km to 0g/km. Main rate of 18% capital allowance will be applicable for business cars with CO2 emissions not exceeding 50g/km. Business cars with CO2 emissions exceeding 50g/km will be eligible for writing-down allowanceat the special rate of 6%.

Note 23: The allowance will be available until 31 March 2023 for incorporated businesses and 5 April 2023 for unincorporated businesses.

Note 24: From 1 January 2019 the annual investment allowance is increased from £200,000 to £1m for investment made from 1 January 2019. This is temporarily extended until 31 December 2021. The threshold will revert back to £200,000 from 1 January 2022.

  
Research and development tax credit rates 2021/22 2020/21  
SME rate 230%  230%  
Research and development SME payable credit (note 25) 14.5% 14.5%  
Research and development expenditure credit (RDEC) scheme 13%  13%  
Film/High-end TV/ videogames tax credit 25% 25%  
Open-ended investment companies and authorised unit trusts 20% 20%  
Note 25: For accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D tax credit that a business can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and NICs liability.  
Patent box      
Patent box 10% 10%  
VAT      
Standard rate(note 26) 20% 20%  
Reduced rate 5% 5%  
Zero rate 0% 0%  
Flat rate of VAT on gross turnover (for limited cost trader) 16.5% 16.5%  
Normal scheme registration threshold £85,000 £85,000  
Deregistration threshold £83,000 £83,000  
Cash and Annual accounting scheme – maximum to join £1,350,000 £1,350,000  
Cash and Annual accounting scheme – exit threshold £1,600,000 £1,600,000  
Flat-rate scheme – maximum allowed to join £150,000 £150,000  
Flat-rate scheme exit threshold £230,000 £230,000  
Note 26: Due to the Coronavirus pandemic, the hospitality, holiday accommodation and attractions industry can apply a reduced rate of 5% for certain supplies made between 15 July 2020 and 30 September 2021. Further the rates for these sectors will be 12.5% until 31 March 2022 before they are back to normal standard rate of VAT 20%.

 

  
  2021/22 2020/21  
Annual tax on enveloped dwellings (ATED) £  £   
More than £0.5m but not more than £1m 3,700 3,700  
More than £1m but not more than £2m 7,500 7,500  
More than £2m but not more than £5m 25,300 25,200  
More than £5m but not more than £10m 59,100 58,850  
More than £10m but not more than £20m 118,600 118,050  
More than £20m 237,400 236,250  
   
 

 

 

 

 

 

 

 

March 2021

ACCA LEGAL NOTICE

  
This is a basic guide prepared by ACCA UK‘s Technical Advisory Service for members and their clients. It should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be obtained, where necessary.