Key Takeaways From The 2021 Budget
On 27th October 2021, the Chancellor of the Exchequer Rishi Sunak presented the Autumn Budget to parliament. In his speech, a series of new measures were announced, all designed to strike a balance between preparing a new economy post-pandemic, whilst ensuring households wouldn’t have to bear the brunt of the rising cost of living.
Below, we summarise some of the key takeaways from the 2021 budget for both individuals and businesses.
The Personal Allowance
The personal allowance is currently £12,570, with the Chancellor announcing in March 2021 that this will be frozen for 2022/23 up until 2025/26.
There is a reduction in the personal allowance for those with “adjusted net income” over £100,000. The reduction is £1 for every £2 of income above £100,000, so there is no personal allowance where adjusted net income exceeds £125,140.
Tax on Dividends
The Dividend Allowance is currently £2,000. Dividends received above the allowance are currently taxed at the following rates:
- 5% for basic rate taxpayers
- 5% for higher rate taxpayers
- 1% for additional rate taxpayers
From 6th April 2022, there will be a 1.25% increase to tackle the current social care crisis caused by Covid-19. The tax hike means that investors will have to pay more on the income they receive from owning shares in a company. The new rates will be:
- 75% for basic rate taxpayers
- 75% for higher rate taxpayers
- 35% for additional rate taxpayers
The age at which you can access your State Pension has changed. Currently, the earliest age at which you can access your pension is 55. From April 2028, this will increase to 57. This change will affect individuals born after 5th April 1973.
The triple lock will rise by 3.1% from April 2022 in line with the Consumer Prices Index (CPI) level of inflation as of the end of September 2021. If you are on a full State Pension (having paid 35 years of National Insurance Contributions), under the revised system this is a rise of £288.60 a year.
The State Pension is paid tax-free but is taxable if your total income is higher than your personal allowances, starting at £12,570.
National Insurance Increases
As announced in September 2021, all NICs rates will increase by 1.25% for the 2022-23-tax year. NICs rates will return to 2021-22 levels from 2023-24 onwards, when the 1.25% charge becomes the Health and Social Care Levy.
Corporation Tax Rates
An extension of the increased annual investment allowance and a reduction in the banking surcharge were two of the headline corporate tax changes announced in the Autumn Budget.
The banking surcharge will be reduced to 3% from April 2023. The profits allowance, which effectively acts as a threshold for when the surcharge becomes payable, is also increasing, from £25 million to £100 million. The surcharge is payable by banks in addition to corporation tax.
The rate of corporation tax will remain at 19% until 1st April 2023, increasing to 25% after this date for companies with profits over £250,000.
Research & Development
Innovation and R&D were a key focus for the Chancellors Autumn statement. Sunak has confirmed that innovation is core to growth in the UK, and pledged a £20bn increase in spending on science per year by 2024.
Research and Development tax credits will be reformed from April 2023 to improve their effectiveness, by expanding qualifying expenditure to include data and cloud computing costs and to refocus support on innovation in the UK.
As experienced chartered accountants in the West Midlands, we can support our clients with all financial and tax matters.
If you would like to find out more about how the government’s budget may impact you, please contact us and speak to one of our trusted team members.
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