Tax Rates, Thresholds & Allowances for Employers in 2020-21/2021-22

All the tax rates, thresholds and allowances set by HMRC that employers should be aware of for the 2020-21 and 2021-22 tax years.

Income Tax rates

Income Tax is a tax paid on taxable income received by individuals including earnings from employment, earnings from self-employment, pensions income, interest on most savings, dividend income, rental income, and trust income.

Rates of Income Tax

Bands: Scotland	2021-22	2020-21
Starter rate – 19%	£1 - £2,097	£1 - £2,085
Basic rate – 20%	£2,098 - £12,726	£2,086 - £12,658
Intermediate rate – 21%	£12,727 - £31,092	£12,659 - £30,930
Higher rate – 41%	£31,093 - £150,000	£30,931 - £150,000
Additional rate – 46%	over £150,000	over £150,000

	2021-22	2020-21
Personal allowance	£12,570	£12,500

Emergency tax codes

The basic personal allowance for the tax year starting 6 April 2021 will be £12,570 (2020-21: £12,500). This means that the tax code for emergency use will be 1257L.

As a result of the increase in the basic personal allowance, there will be a general uplift of tax codes with suffix 'L' which has increased by 7. Employers should therefore add 7 to any tax code ending in L, for example, 1250L will become 1257L.

National Insurance Contributions (NICs)

National Insurance is a separate tax (or contribution) payable in addition to Income Tax. NICs are meant to fund social security benefits such as an entitlement to the State Pension. The amount of NICs payable depends on the level of the taxpayer’s income and employment status.

Class 1 NICs: employees

Almost all employees pay Class 1 NICs once they earn more than £184 (2020-21: £183) per week. Taxpayers that have reached the State Pension age can obtain a certificate that exempts them from paying Class 1 deductions. The employer must still continue to make contributions even if the employee is over the State Pension age.

Weekly earnings limit	Employee (primary)
Lower Earnings Limit Up to £120 (2020-21: £120)	0%
Primary Threshold £120.01 to £184 (2020-21: £120.01 to £183)	0%
Upper Earnings Limit £184.01 to £967 (2020-21: £183.01 to £962)	12%
Over £967 (2020-21: £962)	2%

Class 1 NICs: employers

Class 1 NICs are paid by employers for each employee. HMRC has powers to help ensure that employers pay their PAYE tax deductions or Class 1 NICs. These powers allow HMRC to obtain security from employers where there is a serious revenue risk of employers not paying over their PAYE tax deductions or NICs.

Weekly earnings limit	Employer (secondary)
Lower Earnings Limit Up to £120 (2020-21: £120)	0%
Secondary Threshold £120.01 to £170 (2020-21: £120.01 to £169)	0%
Over £170 (2020-21: £169)	13.8%

A reduced rate of NICs applies to married women and widows who made an election to pay reduced contributions on a special form prior to 12 May 1977. The rates are 5.85% on weekly earnings from £184.01 up to £967 (2020-21: £183.01 up to £962) and 2% on weekly earnings over £967 (2020-21: £962).

Class 1A NIC: expenses and benefits

Class 1A NICs are paid by employers in respect of most benefits in kind provided to employees such as a company car. Class 1A NICs are due in respect of most benefits in kind provided to company directors and employees.

There is a statutory exemption for qualifying trivial benefits in kind costing £50 or less. An annual cap of £300 applies to directors or other office-holders of close companies and to members of their families or households.

Class 1A NIC: expenses and benefits

Class 1A NICs at 13.8% (2020-21: 13.8%) are due on termination payments over £30,000 and on sporting testimonials of more than the £100,000 lifetime exemption.

Class 1B NICs

Class 1B NICs at 13.8% (2020-21: 13.8%) are due by employers that have entered into PAYE settlement agreements with HMRC for the payment of tax on sundry benefits.

National Minimum and Living Wage rates

Employers have a legal obligation to pay the required National Minimum Wage (NMW) or National Living Wage (NLW) rates to their employees. It is a criminal offence to ignore these obligations.

HMRC police these arrangements and have the right to carry out checks and see wage payment records at any time. Employers in breach of the regulations will be required to pay any arrears to their staff immediately. Employers may also be fined and “named and shamed” by HMRC.

The rates are updated annually, during April. The current rates per hour are:

National Living Wage	2021-22	2020-21
Aged 23 & over (2020-21: Aged 25 & over)	£8.91	£8.72

National Minimum Wage	2021-22	2020-21
Aged 21 to 22 (2020-21: Aged 21 to 24)	£8.36	£8.20
Aged 18 to 20	£6.56	£6.45
Aged 16 and 17	£4.62	£4.55
Apprentice rate	£4.30	£4.15

The new rates mirror the recommendations made by the Low Pay Commission (LPC) which have been accepted in full by the Government. The LPC recommended smaller minimum wage increases for those aged under 23 in recognition of the risks to youth employment that the current economic situation poses.

Statutory Maternity Pay

Statutory maternity leave is available to all employees and it doesn’t matter how many hours they work or how long they have worked for their employer. There are additional criteria that must be fulfilled in order for an employee to receive Statutory Maternity Pay (SMP). SMP is a weekly payment from your employer made over a 39-week period.

SMP is payable at

• 90% of the employee’s Average Weekly Earnings (AWE) for the first 6 weeks with no upper limit;
• £151.97 (2020-21 £151.20) or 90% of their AWE (whichever is lower) for the remaining 33 weeks.

The SMP is available to employees if:

• They are on the payroll in the 'qualifying week' - the 15th week before the expected week of childbirth.
• Provide the correct notice period to their employer.
• Provide proof they are pregnant.
• They have been working continuously for the same employer for at least 26 weeks up to any day in the qualifying week.
• They earned at least £120 a week (gross) in the 'relevant period'. The relevant period is usually the 8-week period preceding the 15th week before the baby is due, known as the qualifying week.

Statutory Sick Pay

Employees can get up to £96.35 (2020-21: £94.25) per week Statutory Sick Pay (SSP). The actual amount depends on the number of qualifying days worked each week.

There are special temporary rules for employees who are unable to work if they are suffering from coronavirus or have been told to isolate at home.

Approved Mileage Allowance Payments

The approved mileage allowance payment rates are available where an employee uses their own car on a business trip. Where the approved mileage rates are used, the payments to employees are not regarded as a taxable benefit. Where an employer pays less than the published rates, the employee can make a tax relief claim for the shortfall using mileage allowance relief.

For all cars the mileage allowance payment for the first 10,000 business miles is 45p per mile and 25p per mile for every additional business mile. For NIC purposes a rate of 45p applies for all business miles.

An equivalent system at 20p per mile is available for bicycle travel and 24p per mile for motorcycle travel.

Advisory Fuel Rates

Advisory fuel rates are intended to reflect actual average fuel costs and are updated quarterly. Fuel rates are reviewed four times a year with changes taking effect on 1 March, 1 June, 1 September and 1 December. You can use the previous rates for up to 1 month from the date the new rates apply.

Advisory Electricity Rate

HMRC accepts that if you pay up to 4p per mile when reimbursing your employees for business travel in a fully electric company car there is no profit.

If you have any questions about the issues raised in this article, we at Key Business Consultants can help. Get in touch with us today or call us directly on 02037 282 848.