Budget Summary - Ayres Bright Vickers

Income tax and NIC

As previously announced, the personal allowance will increase to £12,570 for 2021/22 (currently £12,500) and the basic rate limit will increase to £37,700 for 2021/22 (currently £37,500).

The higher rate threshold will therefore increase to £50,270 for 2021/22 (currently £50,000). This means that, for the first time, some basic rate taxpayers will be subject to the high income child benefit charge that applies to incomes over £50,000.

The personal allowance of £12,570 and the basic rate limit of £37,700 will then be frozen until 5 April 2026 rather than increasing annually in line with inflation.

The secondary threshold for NIC has increased slightly so that the optimum salary for 2021/22 will be £736. If you were paying £732 per month for the last tax year you should increase the salary to £736 for the first payment made at the end of April 2021.

As the NIC Class 1 upper earnings limit and the Class 4 upper profits limit are aligned with the income tax higher rate threshold, they too increase next year to an annualised level of £50,270 and will be caught up in the freeze.

These thresholds and rates apply to the UK, save that those for non-savings and non-dividend income for Scottish taxpayers are set by the Scottish Parliament.

Other personal taxes

Also frozen to 5 April 2026 are the:

• capital gains tax annual exempt amount of £12,300 for individuals, personal representatives and some types of trusts for disabled people, and £6,150 for trustees of most settlements.
• pension lifetime allowance at £1,073,100; and
• inheritance tax nil rate band (NRB) of £325,000 and the IHT residence NRB of £175,000. The tapering of the residence NRB will continue for estates worth more than £2m.

Business taxes

Frozen on the business front until 31 March 2024 are VAT registration and deregistration thresholds. This means:

• the taxable turnover threshold which determines whether a person must be registered for VAT will remain at £85,000; and 
• the taxable turnover threshold which determines whether a person may apply for deregistration will remain at £83,000.

Corporate taxes

The main rate of corporation tax will rise from 19% to 25% in April 2023.

Only the largest 10% of companies will be affected by this increase as the existing 19% rate will be retained for small businesses with annual taxable profits of up to £50,000. 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.

In the short term (the two years from 1 April 2021), the Chancellor hopes to stimulate investment by providing a “super deduction” of 130% of eligible expenditure by companies on qualifying plant and machinery. This will generate a reduction in tax of 24.7p for every £1 spent. Expenditure on special rate assets (eg, hot and cold water systems and other “integral assets”) will attract a 50% rate and a 9.5p tax reduction.

There is more good news for companies and unincorporated businesses making trading losses in 2020/21 and/or 2021/22. They will be able to carry back these losses for up to three years to offset against taxable profits (for companies) or net income (for individuals) in those years on a last in first out basis.

Other

Meanwhile, frozen until 5 April 2022 (throughout the UK) are the:

• band of savings income that is subject to the 0% starting rate  – unchanged at £5,000;
• adult ISA annual subscription limit - unchanged at £20,000;
• annual subscription limit for Junior ISAs - unchanged at £9,000; and
• annual subscription limit for Child Trust Funds - unchanged at £9,000.

Finally, as announced by the Chancellor in his speech, there will once again be no increases in alcohol and fuel duties. 

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