Autumn Budget 2021 – Personal Tax

Tax rates

There were no changes to rates of income tax announced in the Budget.

However, it was announced in September that the tax rates on dividends would increase by 1.25% in line with the increase in national insurance for the Social Care Levy.  This means that for 2022-23, dividends in the basic/higher/additional rate bands will be charged at 8.75%/33.75% and 39.35% respectively.

Allowances and tax bands

The personal allowance for 2022-23 will be £12,570, with the income on which you start to pay tax at 40% increasing to £50,270.  These rates will be frozen up to and including the 2025-26 tax year.

(NB if you earn over £100,000 you lose £1 of personal allowance for every £2 you earn over £100,000 so your 40% threshold will effectively be less).

This means that most people with straight forward tax affairs and no benefits in kind (for example, cars or health insurance) should have a tax code of 1259L.

Other allowance levels can be found on the HMRC web site here.

ISAs

The ISA limit will remain at £20,000 for 2022-23

The Junior ISA and Child Trust Fund subscription limits will remain at £9,000.

The Lifetime ISA

A reminder that the ‘Lifetime ISA’ was introduced from 6 April 2017.  This allow adults under 40 to open a Lifetime ISA and pay in up to £4,000 per annum.  The government will add a 25% bonus to the ISA, so, up to £1,000.

Contributions can continue up to the age of 50.

Funds can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn, with the bonus, from the age of 60.

Savers can make withdrawals at any time before the age of 60, but the bonus element and any interest or growth on it will have to be returned to the government.  An additional 5% charge applies if the withdrawal is not for the purchase of your first home.

Dividend tax

The nil rate dividend allowance will remain at £2,000 for 2022-23.

Child Benefit

There were no changes announced to child benefit in the Budget.  Rates for 2021-22 are £21.15 for the first child and £14.00 for subsequent children.  The rates for 2022-23 will be set in November.

Don’t forget that there are special rules for higher earners which mean that, once the income of one of the parents reaches £50,000, 1% of the Child Benefit award will effectively be lost for every £100 of that parent’s income between £50,000 and £60,000 and at £60,000 of income, any remaining benefit will be withdrawn.

There have been some news stories throwing in to doubt HMRC’s ability to raise assessments where the Child Benefit Tax charge has not been declared – there were provisions in the Autumn Budget to secure the ability.

Landlords

Capital gains tax

The rumoured changes to capital gains tax did not happen, but the capital gains tax allowance has been frozen at £12,300 until 5 April 2026.

A reminder that, for disposals of residential property by UK residents made on or after 6 April 2020, a return in respect of the disposal must be made to HMRC within 60 days (increased from 30 in the Autumn Budget for disposals after 27 October 2021) of the disposal, and a payment on account made at the same time. The self-assessed calculation of the amount payable on account takes into consideration unused losses and the person’s annual exempt amount. The rate of tax for individuals is determined after making a reasonable estimate of the amount of taxable income for the year.

Interest deduction

A reminder of the interest restrictions announced in the Summer Budget 2015 that started to come in to effect from April 2017, are fully in effect for 2020-21.

Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits if they pay tax at the higher rate. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Making Tax Digital

MTD ISTA (Income tax self assessment) will be compulsory for the self employed and landlords with gross income (ie before deducting any costs) of £10,000 or more.  Tax payers will be required to make quarterly reports of their income and expenses digitally, together with a fifth filing to finalise the figures and report any other income.

Every transaction will have to be recorded individually (ie you can’t add the sales/rent receipts for the quarter together and report a total figure, you have to enter every receipt individually), and that the information has to be transferred electronically to HMRC quarterly, with no retyping at any stage.

MTD ITSA was due to start from 6 April 2023, but that has now been delayed to 6 April 2024 for the self employed and landlords and 6 April 2025 for general partnerships.

Penalties for late submission and late payment of tax

A new points based penalty regime will be introduced for VAT and Income Tax Self Assessment (ITSA) to replace existing penalties for regular tax return submission obligations.

The changes will come into effect from April 2024 for those submitting quarterly updates through MTD and 6 April 2025 for other ITSA tax payers.  The new regime for VAT will come in to effect for periods staring on or after 1 April 2022.

Late submission penalties

When a taxpayer misses a submission deadline they will incur a point. Points accrue separately for VAT and for ITSA.

A taxpayer becomes liable to a fixed financial penalty of £200 only after they have reached the points threshold.

The level of points threshold depends on the taxpayer’s submission frequency: Annually = 2 points / Quarterly = 4 Points / Monthly = 5 Points.

Late payment penalties

There is no penalty at all if the taxpayer pays the tax late but within 15 days of the due date.

The first penalty is set at 2% of the outstanding amount if they pay between 16 days and 30 days after the due date.

It is set at 4% of the outstanding amount if there is tax left unpaid 30 days after the due date.

A second late payment penalty is charged at a rate of 4% per annum, calculated on a daily basis on the total unpaid tax incurred from day 31.

To avoid a penalty or penalties, the taxpayer will need to either pay or approach HMRC to agree a Time to Pay Arrangement (TTP).  The penalty will stop accruing from the date the TTP is agreed.

Universal Credit

Universal credit is the ‘new’ benefit that replaces a number of old benefits, such as income support, housing benefit and working and child tax credits.  At the moment, some people remain on the old benefits, but are being moved to Universal Credit as they make amendments to claims.

The maximum benefit is calculated based on individual circumstances and then a deduction is made for earnings above a lower threshold (‘the Work Allowances’) at a set withdrawal (taper) rate.

The Chancellor announced in the Budget that the Work Allowances threshold would be increased by £500 and that the taper rate would be reduced from 63% to 55% by 1 December 2021.

The taper is applied to income after deduction of tax, national insurance and relevant pension contributions.  So, to put it into context:  if a claimant is a basic rate tax payer and earns an extra £100, not paying pension contributions, their net income on their payslip would increase by £68.  They would then have 55% of that (using the reduced taper rate) deducted from their Universal Credit payment for the next month.  So of that £100 extra earned, they keep £30.60.

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