Amidst the Covid-19 pandemic, the start of the 20/21 tax year quietly passed us by unnoticed. Whilst we understand tax planning may not be at the top of your priority list right now, we want to do all we can to ensure you make the most of your allowances and minimise your tax liability - you will thank us for it later!
It is important to remember that any furloughed pay received and the Self-Employed Income Support Scheme grants do contribute to your taxable income and the thresholds outlined below.
Here is our summary of the 20/21 tax-free allowances and thresholds available - ask us if you are unsure of what applies to you or if you would like us to go through your tax planning opportunities.
Personal Allowance
The tax-free Personal Allowance has stayed the same as the previous tax year at £12,500.
PAYE Tax & Thresholds
PAYE income in excess of the personal allowance and up to £50,000 is taxable at 20%. Above this, 40% tax is payable on annual earnings until the additional rate of tax 45% kicks in at £150,000.
Recommended Director Salary
To maximise tax-free allowances, Director's can take up to £9,500 per year before incurring any Class 1 NIC and up to £12,500 before incurring any tax - speak to us about the best salary option for you.
Savings Allowance
The personal savings allowance for basic rate tax payers remains at £1,000 and £500 for higher rate tax payers.
Dividends
The tax-free dividend allowance remains at £2,000 - basic rate dividends are taxable at 7.5% within the basic rate band (up to £50,000), 32.5% at the higher rate and 38.1% at the additional rate (over £150,000).
A useful tip to remember when tax planning, dividends are taxed last and may therefore be subject to a higher rate of tax depending on your other income.
Transferable Marriage Allowance
This has stayed at £1,250. If your income is under £30,200 and your spouse does not use all of their personal allowance, you can transfer up to £1,250 of their tax free income to you, saving £250 tax a year.
Student Loan Repayments
Plan 1 threshold increased to £19,390 per year before 9% deductions are applicable.
Plan 2 threshold increased to £26,575 per year before 9% deductions are applicable.
Class 1 NI - Paid by Employees
Annual lower earnings limit £6,240 and the Primary Threshold has increased to £9,500 meaning employees can earn £792 a month before paying 12% Class 1 NI. The upper threshold remains at £50,000 where deductions are reduced to 2%.
Class 1 NI - Paid by Employers
The 13.8% employer's NI kicks in at annual salaries over £8,784.
Class 2 NI - Paid by Self-Employed
The Small Profits Threshold has increased to £6,475, those with profits above this pay £3.05 per week (£158.60 per year).
Class 3 NI - Voluntary Contributions
Voluntary contributions can be made at £15.30 per week.
Class 4 NI - Paid by Self-Employed
The Lower Profits Limit has increased to £9,500, those with profits over this will pay 9% up to £50,000 when Class 4 NI is reduced to 2%.
Capital Gains
The Annual Exempt Amount has increased to £12,300 - main rates of tax on gains are 10% in the basic rate and 20% for higher rate tax payers. For gains made on for gains on residential property not eligible for Private Residence Relief, and carried interest rates of 18% / 28% are applicable.
Get in touch to find our more about maximising your allowances and minimising your 2020/21 tax liability.
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Equal Accountancy Ltd offers Accountancy and Bookkeeping services in Hemel Hempstead and surrounding areas across Herts, Beds and Bucks. We offer a range of services for Limited Companies, Self-Employed individuals and Landlords including Year End Accounts, Corporation Tax returns, Self-Assessment Tax returns, Payroll services, VAT returns, Bookkeeping and Company Secretarial. Get in touch today for a free, non-obligatory quote for your business needs.