New Tax Year Changes Impacting You

With the new tax year starting on 5 April we review the changes coming into force and impacting your personal and business finances in the year ahead.

Tax free income

From 2021/21, the personal allowance (PA) will rise from £12,500 to £12,570, an increase of £70, the smallest increase seen in recent times. We are used to seeing our personal allowance or tax free income rise year on year substantially, and although this increase is most welcome, it is much less than previous years.

The personal allowance thresholds are the same across the UK, but the income tax thresholds in England, Scotland and Wales differ, however, across the UK, all UK taxpayers will be paying more income tax over the next five years, particularly if your income increases year on year.

Dividend Allowance

The Tax-Free Dividend Allowance  for the 2021/22 tax year remains at £2,000.

Furthermore there is no change to dividend tax rates in the 2021/22 tax year:

- The tax-free dividend allowance is £2,000

- Basic-rate taxpayers pay 7.5% on dividends

- Higher-rate taxpayers pay 32.5% on dividends

- Additional-rate taxpayers pay 38.1% on dividends.

Company Cars

The increases to benefit in kind (BiK) tax rates for company cars for the 2021/22 tax year will come into force as planned. For cars first registered after 5th April 2020 will see their benefit charge rise by 1%.

Fully electric cars have no tax charge in the 2020/21 tax year, but there will be a charge on 1% of their list price in the 2021/22 tax year, increasing to 2% in 2022/23.

From 6th April 2021, the percentage applied to the list price of the car will increase based on the CO2 emissions published by the Vehicle Certification Agency. HMRC has published a ready reckoner you can use to calculate your company car tax.

Fuel Benefit

When your company pays for fuel you have used personally or allows personal use of a company van, it is a Benefit in Kind t(BIK) tax charge.

The BIK is being increased from 6th April 2021.

The BIK on company vans increases to £3,500 (from £3,490). The BIK on fuel for a van provided for personal use increases to £669 (from £666).

A director who is provided with a company car and also receives free fuel from the company is taxed on the cash equivalent value of the benefit each tax year. The cash equivalent amount is fixed each year and increases to £24,600 (from £24,500) on 6th April 2021.

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 that level until 2025/26.

Inheritance Tax

There is no change to the Inheritance Tax (IHT) nil rate band, the threshold remains at £325,000 and is frozen at that level until 2026.

Entrepreneurs’ Relief

From 6th April 2020 the Entrepreneurs Relief lifetime allowance limit remains capped at £1 million.

Corporation Tax

Corporation Tax payable on company profits remains at 19% for the 2021/22 tax year.

However at the Spring Budget in March, the Chancellor announced plans for a rise in the headline rate of Corporation Tax to 25% from April 2023.

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

Business investment tax relief and loss relief

A new “super-deduction” tax relief was announced for businesses to reduce their tax bill by 130% of what they spend on investment or plant and machinery.

The Chancellor also announced the extension of the normal loss carry-back rules from one year to three years for losses of up to £2 million. This will enable tax repayments to be claimed, providing relief and cash flow support for businesses.