Tax Rates and Thresholds for 2021/22

The current tax year runs from 6th April 2021 until 5th April 2022. In his 2021 Budget announcement, Chancellor Rishi Sunak set out the tax rates and thresholds for the year. These have large implications for small and medium-sized businesses, especially in light of the economic instability created by the coronavirus pandemic.

It’s crucial that business owners understand the details, so MCC Accountants has explained what you need to know below.

Income Tax

Your personal tax allowance is the amount of income you do not have to pay tax on. For the 2021/22 tax year, this has increased from £12,500 to £12,570. This means that you will only pay Income Tax on the amount you earn that is over £12,570.

Your tax code will tell you any further information you need to know about this, including whether you are entitled to the standard tax-free Personal Allowance or if additional calculations have been used, and whether it has been used up in the current tax year. You can find out your tax code using this Government tool.

If you earn more than the Personal Allowance, how much Income Tax you pay will depend on which band you fall into. The Income Tax thresholds are as follows:

Basic rate – £12,571 – £50,270 – taxed at 20%

Higher rate – £50,271 – £150,000 – taxed at 40%

Additional rate – £150,000 upwards – taxed at 45%

Dividend Tax

If you are the Director of a limited company, it’s worth checking with your accountant to see if they have recommended the most tax-efficient combination of salary and dividends for you to pay yourself with.

If the dividend amount falls within your Personal Allowance, you won’t need to pay tax on it. On top of this, you have a Dividend Allowance of £2,000 which you don’t need to pay tax on. Dividend sums that exceed this will be added to your other income to fit you into one of three tax thresholds:

Dividend ordinary-rate (for basic-rate taxpayers) – 7.5%

Dividend higher-rate (for higher-rate taxpayers)  – 32.5%

Dividend additional-rate (for additional-rate taxpayers) – 38.1%

National Minimum Wage

The National Minimum Wage is decided based on the age of the employee and whether or not they are working as part of an apprenticeship. The minimum wage bands (per hour) are as follows:

Apprentices – £4.30

Under 18s – £4.62

Aged 18-20 – £6.56

Aged 21-22 – £8.36

23 and above – £8.91 (this is known as the National Living Wage)

Class 1 (primary) National Insurance

As an employer, you must deduct Class 1 (primary) NI from the salary of your employees, and pay it to HMRC on their behalf through PAYE. The tax thresholds and rates are as follows:

Lower Earnings Limit: £120 weekly or £6,240 annually. Employees earning less than this won’t incur NI.

Primary Threshold: £184 weekly or £9,568 annually. This is the point at which employees start paying NI. If an employee earns less than this but more than the Lower Earnings Limit, they will not pay NI but will begin to accrue NI benefits, such as qualifying payments towards their State Pension.

Upper Earnings Limit: £967 weekly or £50,270 annually. Earnings above the Primary Threshold up to and including the Upper Earnings Limit are subject to NI at 12%.

Earnings above the Upper Earnings Limit incur NI at 2%.

Class 1 (secondary) National Insurance

In addition to Class 1 (primary) NI, employers must also make contributions towards employees’ NI, known as Class 1 (secondary) NI.

Employers pay NI at a rate of 13.8% on salary payments above a threshold of £170 weekly, or £8,840 annually.

Corporation Tax

Limited companies pay Corporation Tax on their profits. The tax rate for 2021/22 remains at 19%.

The Corporation Tax increase announced in the 2021 Budget isn’t set to take place until 2023. When it does, companies with profits less than £50,000 will continue to pay 19%, and the maximum rate will be set at 25%.

Capital Gains Tax

If you sold your UK residential property on or after the 6th April 2020 you must report and pay any tax due on the sale within 30 days. To do this you need to create a Capital Gains Property Account details of which can be found in the link below.

You will be liable to pay a penalty and interest if you fail to pay what is due within 30 days.

Report and pay Capital Gains Tax on UK property

Capital Gains Tax applies to the profits earned on the sale of an asset.

The tax thresholds remain unchanged from the previous year. The exemption threshold, which is the amount at which you do not have to pay Capital Gains Tax, remains at £12,300. How much Capital Gains Tax you pay will depend on the nature of the asset and your Income Tax band:

Basic rate of Income Tax

Gains from other residential property – 18%

Gains from other chargeable assets – 10%

Higher rate of Income Tax

Gains from other residential property – 28%

Gains from other chargeable assets – 20%

MCC Accountants can help

As Manchester tax accountants, we can help you to work out the most tax-efficient way to operate your business whilst ensuring you stay HMRC-compliant. Whatever stage your business is at, we can guide through all the tax thresholds and necessary paperwork. Besides tax advice, we offer a wide range of accounting services to help you grow your business.

Call us on 0161 707 1500, or complete our online enquiry form and we will be in touch shortly.