BOOK A FREE CONSULTATION

Introduction

Annual changes to different tax rates, thresholds and allowances can affect the tax bills of both individuals and businesses. Therefore, it is mandatory for individuals and businesses to be aware about the tax rates, thresholds and allowances for the current tax year i.e. 2020-21.

Working out taxes is a complex affair and it is not possible for everyone to work out the correct amount of tax as there are many things which you need to take into consideration before filing your tax returns. Information about tax rates, thresholds and allowances not only prepares you to better manage your finances but also helps in working out the correct amount of tax liability for the current year. In order to get proper guidance and to know how much effect they will put on your tax bill - Refer to all the tax rates, thresholds and allowances for the tax year 2020-21 below.

Income Tax

Allowances 2020/21 2019/20
Personal Allowance (PA)* £12,500 £12,500
Marriage Allowance† 1,250 1,250
Blind Persons Allowance 2,500 2,450
Rent a room relief** 7,500 7,500
Trading income** 1,000 1,000
Property income** 1,000 1,000

*PA is withdrawn at £1 for every £2 by which ‘adjusted income’ exceeds £100,000. There is no allowance given above £125,000.

† The part of the PA that is transferable to a spouse or civil partner who is not a higher or top rate taxpayer.

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

TAX Rate and allowances 2020-2021
Rate bands 2020/21 2019/20
Basic Rate Band (BRB) £37,500 £37,500
Higher Rate Band (HRB) 37,501 – 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 2020/21 and 2019/20
Rates differ for General/Savings/Dividend income G S D
Basic rate 20% 20% 7.5%
Higher rate 40% 40% 32.5%
Additional rate 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). Scottish taxpayers are taxed at different rates on general income (see below).

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 taxes 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.

Income tax – Scotland   2020/21 2019/20
Starter rate 19% £2,085 £2,049
Basic rate 20% 2,086 – 12,658 2,050 – 12,444
Intermediate rate 21% 12,659 – 30,930 12,445 – 30,930
Higher rate 41% 30,931 – 150,000 30,931 – 150,000
Top rate 46% over 150,000 150,000

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

High Income Child Benefit Charge (HICBC)

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

Remittance basis charge 2020/21 2019/20
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

Pensions

Registered Pensions 2020/21 2019/20
Lifetime Allowance (LA) £1,073,100 £1,055,000
Annual Allowance (AA)* 40,000 40,000

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

*Usually tapered down, to a minimum of £4,000 (2019/20: £10,000), when adjusted income exceeds £240,000 (2019/20 £150,000).

State pension (per week) 2020/21 2019/20
Old state pension – Single person £134.25 £129.20
Old state pension – Married couple 214.75 206.65
New state pension† 175.20 168.60

†Applies to those reaching state retirement age after 5 April 2016.

Also See: Can I make pension contributions through my limited company?

Annual investment limits

2020/21 2019/20
Individual Savings Account (ISA)
– Overall limit £20,000 £20,000
– Lifetime ISA 4,000 4,000
Junior ISA 9,000 4,368
EIS – 30% relief 2,000,000 2,000,000
Seed EIS (SEIS) – 50% relief 100,000 100,000
Venture Capital Trust (VCT) – 30% relief 200,000 200,000

National Insurance Contributions

Class 1 (Employees)

  Employee Employer
Main NIC rate 12% 13.8%
No NIC on first £183pw £169pw
Main rate charged up to* £962pw no limit
2% rate on earnings above £962pw N/A
Employment allowance per business** N/A £4,000

*Nil rate of employer NIC for employees under the age of 21 and apprentices under 25, up to £962pw.

**Some businesses do not qualify, including certain sole director companies and employers who have an employer’s NIC liability of £100,000 or more for 2019/20.

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 £6,475

Class 3 (Voluntary)

Class 3: Flat rate per week £15.30

Class 4 (Self employed)

On profits £9,500 – £50,000 9.0%
On profits over £50,000 2.0%

Also See: National Insurance Contributions Rates 2020/21

Vehicle benefits

Cars

Taxable benefit: List price multiplied by chargeable percentage.

2020/21 percentage for petrol cars first registered
CO2 emissions
g/km
Electric range
Miles
Pre 06.04.2020
%
Post 05.04.2020
%
0 N/A 0 0
1-50 >130 2 0
1-50 70 - 129 5 3
1-50 40 - 69 8 6
1-50 30 - 39 12 10
1-50 <30 14 12
51-54 N/A 15 13

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%.

Vans

Chargeable value of £3,490 (2019/20: £3,430) if private use is more than home-to-work. Electric vans £2,792 (2019/20: £2,058).

Fuel

Car: CO2-based percentage from above table multiplied by £24,500 (2019/20: £24,100).

Van: £666 (2019/20: £655).

Employee contributions do not reduce taxable figure unless all private fuel is paid for by the employee (in which case there is no benefit charge).

Also See: Vehicle & Car Tax – Tax Rates

Tax-free mileage allowances

Employees own transport per business mile
Cars first 10,000 miles 45p
Cars over 10,000 miles 25p
Business passengers 5p
Motorcycles 24p
Bicycles 20p

Also See: How to claim VAT on mileage expenses?

Capital Gains Tax

  2020/21 2019/20
Annual exemption amount
Individuals, estates £12,300 £12,000
Most trusts 6,150 6,000
Tax rate
Individual (to basic rate limit)* 10% 10%
Individual (above basic rate limit)* 20% 20%
Trusts, estates* 20% 20%
Entrepreneurs Relief (ER)** 10% 10%
Investors’ Relief (IR)*** 10% 10%

*Individuals are taxed at 18%/28% on gains on residential property and receipts of carried interest. Trusts and estates are taxed at 28% in these circumstances.

**ER is available for lifetime gains of up to £1m (£10m for disposals pre 11.3.20). Qualifying disposals include a trading business and shares in a trading company (from a minimum 5% holding) by an officer/employee. Various conditions apply.

***Shares in an unquoted trading company may qualify for IR on lifetime gains up to £10m, if acquired by someone who is not a paid officer or employee of the company and disposed of after 5.4.19. Various conditions apply.

Also See: Capital Gains Tax Calculator – How to calculate?

Corporation Tax

Year to 31.3.2021 31.3.2020
Corporation Tax rate 19% 19%

Research and development relief
SME enhanced expenditure
deduction scheme*

130%

130%
Large company R&D Expenditure
Credit (RDEC) scheme**

13%

12%

*Additional deduction for qualifying R&D

**Taxable expenditure credit for qualifying R&D

SMEs that make losses can surrender the deduction to HMRC in exchange for a payment of 14.5% of the loss.

Also See: Capital Gains Tax Calculator – How to calculate?

Main capital allowances

Plant and machinery allowances Rate
Annual Investment Allowance (AIA)
– expenditure 1.1.19 - 31.12.20 £1,000,000 100%
– expenditure pre 1.1.19 and post 31.12.20 200,000 100%
Energy/water-efficient equipment bought pre 1/6 April 2020 100%
Writing down allowance: general pool (reducing balance) 18%
Writing down allowance: special rate pool (reducing balance)* 6%

Motor cars purchased
  From 1.4.18
CO2 (g/km)
1.4.15 to 31.3.18
CO2 (g/km)
Allowance
New cars only up to 50 up to 75 100%
In general pool up to 110 up to 130 18% pa
In special rate pool above 110 above 130 6% pa

Structures and buildings allowance  
From 29.10.18 to 31.3.20 (companies) or 5.4.20 (others) 2%
From 1.4.20 (companies) or 6.4.20 (others) 3%

Property Taxes

Annual Tax on Enveloped Dwellings (ATED)

ATED applies to ‘high value’ residential properties owned via a corporate structure, unless the property is used for a qualifying purpose. The tax applies to properties valued at more than £500,000.

Property value Annual charge to
  31.3.2021 31.3.2020
£0.5m - £1m £3,700 £3,650
£1m - £2m 7,500 7,400
£2m – £5m 25,200 24,800
£5m – £10m 58,850 57,900
£10m – £20m 118,050 116,100
Over £20m 236,250 232,350

Stamp Duty Land Tax (SDLT), Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT)

Residential property (1st property only)
SDLT - England & NI
£000
Rate LBTT - Scotland
£000
Rate LTT - Wales
£000
Rate
Up to 125 Nil Up to 145 Nil Up to 180 Nil
125 - 250 2% 145 – 250 2% 180 – 250 3.5%
250 – 925 5% 250– 325 5% 250 – 400 5.0%
925 – 1,500 10% 325 – 750 10% 400 – 750 7.5%
Over 1,500 12% Over 750 12% 750 – 1,500 10.0%
        Over 1,500 12.0%

A supplement applies for all three taxes where an additional residential property is purchased for more than £40,000 (unless replacing a main residence). It is also payable by all corporate purchasers. The rate is 3% (LBTT: 4%) of the total purchase price.

For SDLT:

– First-time buyers purchasing a property of up to £500,000 pay a nil rate on the first £300,000 of purchase price.

– A rate of 15% may apply to the total purchase price, where the property is valued above £500,000 and purchased by a ‘non-natural person’ (e.g. a company).

For LBTT, first-time buyer relief increases the nil rate band to £175,000.

Non-residential or mixed use property
SDLT - England & NI
£000
Rate LBTT - Scotland
£000
Rate LTT - Wales
£000
Rate
Up to 150 Nil Up to 150 Nil Up to 150 Nil
150 – 250 2% 150 – 250 1% 150 – 250 1%
Over 250 5% Over 250 5% 250 – 1,000 5%
        Over 1,000 6%

Also See: Pay Capital Gains Tax on Residential Property in 30 Days

Value Added Tax

Standard rate (1/6 of VAT-inclusive price) 20%
Registration level from 1.4.2017 £85,000 per annum
Deregistration level from 1.4.2017 83,000 per annum

Most businesses above the registration threshold must comply with the Making Tax Digital requirements.

Flat Rate Scheme (FRS)

Annual taxable turnover to enter scheme Up to £150,000
Must leave scheme if annual taxable turnover Exceeds £230,000

If using FRS, the VAT paid by the business is a fixed percentage (based on business category) of FRS turnover rather than the net of output tax over input tax. Input tax is usually not recoverable.

Cash accounting and Annual accounting schemes

Annual taxable turnover to enter scheme Up to £1.35m
Must leave scheme if annual taxable turnover Exceeds £1.60m

Option to tax property

Notify HMRC within 30 days.

Inheritance Tax

2020/21 2019/20
Nil rate band (NRB)* £325,000 £325,000
NRB Residential enhancement (RNRB)†* 175,000 150,000
Tax rate on death** 40% 40%
Tax rate on lifetime transfers to most trusts 20% 20%

†RNRB is available for transfers of a main residence to (broadly) direct descendents. It tapers away at the rate of £1 for every £2 of estate value above £2m.

*Up to 100% of the proportion of a deceased spouse’s/civil partner’s unused NRB and RNRB band may be claimed to increment the current NRB and RNRB when the survivor dies.

**Rate reduced to 36% if at least 10% of the relevant estate is left to charity. Unlimited exemption for transfers between spouses/civil partners, except if UK domiciled transferor and foreign domiciled transferee, where maximum exemption £325,000.

100% Business Property Relief (BPR) for all shareholdings in qualifying unquoted trading companies, qualifying unincorporated trading businesses and certain farmland/buildings.

Also See: HMRC Inheritance Tax UK

Reduced tax charge on gifts within 7 years before death

Years before death 0-3 3-4 4-5 5-6 6-7
% of full death tax charge payable 100 80 60 40 20

Annual exemptions for lifetime gifts include £3,000 per donor and £250 per recipient.

Key dates and deadlines

Payment dates
Self assessment 2020/21 2019/20
1st payment on account 31 January 2021 2020
2nd payment on account 31 July 2021 2020
Balancing payment 31 January 2022 2021
Capital Gains Tax*† 31 January 2022 2021

*UK residential property 2020/21: CGT due within 30 days of completion.

†Non-residents with gains on any UK land and buildings must pay CGT within 30 days of completion, except in 2019/20 when already filing a self assessment tax return.

Other payment dates
Class 1A NIC 19 July 2021 2020
Class 1B NIC 19 October 2021 2020

Corporation tax is due 9 months and 1 day from the end of the accounting period, unless a ‘large’ company paying by quarterly instalments.

2019/20 Filing deadlines
Issue P60s to employees 31 May 2020
P11D, P11D(b) 6 July 2020
Self Assessment Tax Return (SATR) paper version 31 October 2020
Online SATR if outstanding tax
to be included in 2021/22 PAYE code

30 December 2020
Online SATR 31 January 2021

Non-resident CGT return is due within 30 days of completion of sale of UK L&B by a non-resident.

Useful rates

National Minimum Wage
Rates per hour

From 1.04.20

From 1.04.19
Aged 25 and over (National Living Wage) £8.72 £8.21
Aged 21 - 24 8.20 7.70
Aged 18 - 20 6.45 6.15
Aged 16 - 17 4.55 4.35
Apprentices 4.15 3.90

You are advised to consult us before acting on any information contained herein.

Also See: Tax advantaged employee share schemes

Share this post


Sign up to our newsletter

Tax news for contractors freelancers and small businesses.