Tax changes announced in Budget: March 2021.

Last Updated on 23 March 2021

Tax buttons on calculator

I always listen carefully to the changes announced in budget statements. It feels personal purely because I need to change all my training materials.

So what was announced on 3 March 2021?

Income tax

This is how PAYE people get their income taxed, and it’s also how profits are taxed for sole traders.

The personal allowance – how much you are allowed to earn before you pay income tax – is up to £12,570 (from £12,500) from 6 April 2021.

From the same date the 40% income tax rate kicks in at £50,270 on income/profit (up from £50,000).

These will be help at this level until April 2026.

Are you resident in Scotland?

The Scottish Parliament has the right to change income tax bands, and has done this for a number of years. People earning more than about £35,000 pay more income tax than residents in the rest of the UK. People earning less than about £30,000 pay less income tax in Scotland.

Scottish income tax bands

Source: https://www.gov.scot/publications/scottish-income-tax-2021-2022/

National Insurance

Class 1 and Class 4 kick in at £9,568 of income (or profits for sole traders). (This was previously £9,500)

No change (yet) to the rate of class 4 national insurance for sole traders. It’s still 9% of profits.

NI goes down to 2% from the higher rate income tax threshold. No change in this principle, although the threshold will go up (see above).

Class 2 National Insurance rate for sole traders remains at £3.05 per week.

The small profits threshold for paying class 2 NI is £6,515. Below that level of profit, as sole trader doesn’t have to pay class 2.

Corporation tax

This is relevant to Limited Company freelancers (and any other companies of course).

Companies with profits of £50,000 or less will keep the 19% tax rate.

From April 2023, companies with profits more than £250,000 will see their corporation tax rate leap from 19% to 25%.

Between £50,001 and £250,000 profits there will be a tapering system to avoid a big cliff edge.

Value Added Tax

Businesses in the hospitality and tourism industries have an extension of the lower VAT rate. 5% until end of September 2021 and £12.5% until end of March 2022.

For the rest of us no changes. The VAT compulsory registration threshold stays at £85,000 turnover until April 2024.

Intriguingly Rishi Sunak hinted at a threshold reduction to come. As predicted four years ago >

Dividend tax

No change – the first £2,000 of dividends is still free of dividend tax for 2021-22.

Posted on 03 March 2021

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