Individuals and businesses will be affected by the numerous types of tax rates, allowances, and thresholds that are used in the UK. If you are a business owner, then you will be one of those people who will be affected by most of them. Aside from your actual tax rates, these changes on the annual tax bands and allowances could also affect your personal finances.
Here, we will show you the tax rates and thresholds for the 2019/20 and 2020/21 tax years. We have divided them into two sections, the Personal Tax Rates, and Company Tax Rates.
Personal Tax Allowances and Rates in the UK
Personal Allowance and Tax Thresholds
Personal Allowance refers to the amount of tax-free income that you get to enjoy every tax year. For 2019/20, the amount for personal allowance is £12,500 and it remains the same on 2020/21.
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The earnings limit for Personal Allowance refers to the range of income that can cause your Personal Allowance to decrease. For the tax years 2019/20 and 2020/21, the income limit for Personal Allowance is set at £100,000. If your earnings go higher than £100,000, then for every £2 in earnings, £1 will be taken off from your Personal Allowance.
Your personal allowance will be entirely taken away if your earnings are more than £125,000. This amount is both for 2019/20 and 2020/21.
Income Tax Rates and Tax Thresholds
The rates here assume that the individual obtained a Personal Allowance of £12,500 because of tax-free income for the tax year. Also, there will be a reduction of £1 on the Personal Allowance for every £2 earned over £100,000.
Tax Band Name
The basic rate is considered as the lowest level of income tax which must be paid by the individual whose personal allowance goes beyond the limit. It will be 20% for earnings between £12,501 and £50,000.
The higher rate is considered as the middle level of income tax. For earnings between £50,001 and £150,000, the tax rate on income will be 40%.
The additional rate is the highest rate of income tax intended for high earners. The tax rate will be 45% on income of over £150,000.
Keep in mind that these rates do not apply for Scottish residents since they have different Income Tax rates.
Scottish Income Tax Rates and Thresholds
Ever since the 2018/19 tax year, the Scottish Government has implemented a different income tax system, making them unique from the rest of the UK. This means that if you are a resident in Scotland, then you will pay different income tax rates and use different bands and thresholds, unlike the rest of the UK.
Tax Band name
The starter rate is Scotland’s lowest level of income tax. It uses a tax rate of 19% for earnings between £12,501 and £14,549 for the 2019/20 tax year. For the 2020/21 tax year, a tax rate of 19% is used for income between £12,501 and £14,585.
The basic rate uses a tax rate of 20% for earnings between £14,550 and £24,944 for the 2019/20 tax year. However, for the 2020/21 tax year, a tax rate of 20% is applied to earnings between £14,586 and £25,158.
The intermediate rate is for middle-income earners who have an income between £24,945 and £43,430, a tax rate of 21% is used for the 2019/20 tax year. For the 2020/21 tax year, the 21% tax rate is used for earnings between £25,159 and £43,430.
The higher rate is for those who are earning between £43,431 and £150,000 for the 2019/20 tax year. They will be using a tax rate of 41%, also for those whose income is between £43,431 and £150,000.
The additional rate is designed for high earners since it is the highest level of income tax. It uses a tax rate of 46%, for those who are earning over £150,000. This is applicable both for the 2019/20 tax year and the 2020/21 tax year.
Personal allowance remains at £12,500. The tax rates above assume that the individuals enjoy the Personal Allowance for the tax-free income of £12,500 for the particular tax year. Also, the Personal Allowance will be decreased by £1 for each £2 earned for those earning more than £100,000. This is just the same as the rest of the UK.
Dividend Tax Rates
For the 2020/21 tax year, there are no significant changes in the dividend tax rates. The tax-free dividend allowance remains at £2,000. Depending on your dividends, basic-rate taxpayers will pay 7.5%, 32.5% for higher-rate taxpayers, and 38.1% for additional rate taxpayers.
What Exactly Are Dividends?
Dividends are actually the amount of money being paid to the shareholders of the company. This is based on the profits earned by the company after Corporation Tax was deducted. If you are operating a limited company, then dividends are the most tax-efficient way of acquiring money from your company.
National Insurance Rates
It seems that National Insurance bands and rates are the most confusing. Perhaps its because it uses different rates for individual traders, employees, and limited company directors. Generally, National Insurance contributions (NICs) are computed weekly instead of yearly. But here, we provided both.
Employee National Insurance Contributions
The Lower Earnings Limit has a National Insurance contribution of £118 weekly and £6,136 yearly for the 2019/20 tax year. While for the 2020/21 tax year, the National Insurance contribution is £120 weekly and £6,240 yearly. There will be no NICs for those whose earnings are below this limit.
The Primary Threshold will have a National Insurance contribution of £166 weekly and £8,632 annually for the 2019/20 tax year. For the 2020/21 tax year, the National Insurance contribution changes to £183 weekly and £9,500 annually. Similarly, earnings that are below this limit will have no NICs.
The Upper Earnings Limit will have a weekly National Insurance contribution of £962 and £50,000 yearly. This is both for the 2019/20 tax year and 2020/21 tax year. Keep in mind that those who are earning over the Primary Threshold and lesser than the Upper Earnings Limit will be taxed at 12%.
Also, earnings that are over the Upper Earnings Limit will be taxed at 2%.
Employer National Insurance Contributions
The Secondary Threshold has a weekly National Insurance contribution of £166 and £8,632 yearly. This is for the 2019/20 tax year. For the 2020/21 tax year, the weekly National Insurance contribution changes to £169 and £8,788 yearly.
Also, salary payments which are over this threshold will have an Employer NICs at 13.8%. If you are an employer, then you are qualified to claim Employment Allowance so you can lessen your Employer’s National Insurance expenses.
Self-employed National Insurance Contributions
The Small profits threshold has a yearly National Insurance contribution of £6,365 for the 2019/20 tax year and £6,475 for the 2020/21 tax year. Also, if your earnings fall below this threshold, then no NICs will be incurred.
The Class 2 NICs are intended for those who are earning higher than the Small profits threshold. They will have a weekly National Insurance contribution of £2.95 for the 2019/20 tax year and £3.05 per week for the 2020/21 tax year.
Lower Profits Limit
will have a yearly National Insurance contribution f £8,632 for the
2019/20 tax year and for the 2020/21 tax year it will be £9,500. Those whose income is up to this limit will have to use the Class 2 NICs. On the other hand, for those who are earning beyond this limit should use the Class 4 NICs.
The Upper Profits Limit has a yearly National Insurance contribution of £50,000, both for the 2019/20 tax year and the 2020/21 tax year. Also, for those whose earnings are up to this limit should acquire the Class 2 NICs. Meanwhile, if your income is between the Lower Profits Limit and High Profits Limit, then you will be using the rate of 9% for the Class 4 NICs.
Those who have earnings above the Upper Profits Limit will pay more than £50,000 for their National Insurance contribution. However, any income that is above this limit should use the Class 2 NICs. For the Class 4 NICs, the rate is 9% of the income between the Lower Profits Limit and Higher Profits Limit. For income over the Upper Profits Limit, a rate of 2% for the Class 4 NICs will be applied.
Capital Gains Tax
Capital Gains Tax (CGT) is the tax that you will pay whenever you’ve made a profit from selling something. You will be taxed by the amount that you gain from the sale and not the whole amount that you receive. Typically, the tax rate that will be used will likely depend on the amount of taxable income.
Essentially, Capital Gains Tax is the tax imposed on any profit that you receive after the disposal of an asset. Usually, it is applicable to most assets that are being sold. However, there are some exemptions. For instance, you are not required to pay Capital Gains Tax if you are selling your own home or personal possessions that cost £6,000 or below.
When it comes to Capital Gains Tax, there are some complications. That is why, if you require some help, then you can always talk to our accountant .
The yearly exemption from capital gains is £12,000 for the 2019/20 tax year and £12,300 for the 2020/21 tax year.
If you are a Basic Rate taxpayer , then you have to pay 18% of the gains that you obtained from other residential property and 10% of the profits that came from other valuable assets. This is applicable for the 2019/20 tax year and the 2020/21 tax year.
On the other hand, if you are a Higher Rate taxpayer , then you will need to pay 28% of the gains from other residential property and 20% of the gains from other valuable assets. Again, this is both for the 2019/20 tax year and the 2020/21 tax year.
For the Entrepreneurs’ Relief , which has a lifetime limit of £10 million for the 2019/20 tax year and £1 million for the 2020/21 tax year, the payment is 10% both for the 2019/20 tax year and the 2020/21 tax year.
Additionally, during the March 2020 budget, the Chancellor also declared that the payment for Capital Gains Tax on property sales should be paid within 30 days from the date of sale. This will be effective on April 6, 2020.
Company Tax Rates in the UK
The Corporation Tax rate is 19% for both 2019/20 tax year and 2020/21 tax year.
VAT Registration threshold will be the basis if you need to register for VAT. For the 2019/20 tax year and the 2020/21 tax year, the level of revenue is set at £85,000.
General VAT Rates
Starting on December 1, 2020, there will no VAT imposed on e-books and online newspapers, journals, and magazines. But before it will take effect, these items will obtain a VAT of 20%.
The standard VAT rate is 20% for most goods and services. This is used for both 2019/20 tax year and 2020/21 tax year.
The reduced VAT rate is 5% for the 2019/20 tax year and 2020/21 tax year. This is a much lower rate that is applied to specific goods and services.
The Zero VAT rate (0%) is only applicable to certain goods and services including children’s clothes, foods, etc. Keep in mind that this is not similar to those items which are exempted from VAT.
Flat Rate VAT Scheme Sector Rates
The Flat Rate VAT scheme can only be availed by companies that have a revenue of £150,000 or less. This scheme will require you to select a particular business sector. At the same time, you must use the appropriate rates for all transactions where VAT is applicable. If you are not certain which sector your business belongs to, then you must consult an accountant.
If the turnover of your company increases and goes beyond £230,000 per year, then you are not allowed to use the Flat Rate scheme anymore. You have to use the Standard Rate scheme.
However, if you are a Limited Cost Trader, then you are required to use the 16.5% rate no matter what business sector you belong to.
The Approved Mileage Allowance Payments (also known as AMAP) of HMRC permits the use of business mileage as expenses based on certain rates. Currently, the rate for the initial 10,000 miles is £0.45 for a car or van, £0.24 for motorcycle, and £0.20 for a bicycle. If the rate exceeds 10,000 miles then its £0.25 for a car or van, £0.24 for motorcycle, and £0.20 for a bicycle.
Director Loan Rate
If the company’s loan amount goes beyond £10,000 at any point within the accounting period then the interest rate that will be used will depend on HMRC’s Official Rate of Interest which is 2.25% starting in April 2020 onwards. For the 2019/20 tax year, it was set at 2.5%. This interest rate will be computed based on the entire amount with the addition of 13.8% for the Class 1A National Insurance contributions. Sometimes there is a need for you to report this on your P11D.
If the company fails to repay the loan within 9 months of the accounting period, then they must pay an additional 32.5% Corporation Tax. This amount will be repaid by HMRC once the loan is repaid to the company.