Income tax, national insurance rates, 5% VAT and VAT registration limits

No changes to income tax rates and personal allowance frozen

The basic rate of income tax and higher rate remain at 20% and 40% respectively, and the 45% additional rate continues to apply to income over £150,000.

The personal allowance and higher rate threshold have been increased in line with inflation to £12,570 and £50,270 respectively for 2021/22. These thresholds will then be frozen until 2025/26 possibly yielding an extra £19 billion for the government.

There had again been rumours that the dividend rate might be increased, but dividends continue to be taxed at 7.5%, 32.5% and then 38.1%, depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate band. Note that the first £2,000 of dividend income continues to be tax-free.

National Insurance rates

The national insurance contribution (NIC) rates and bandings were announced 16 December 2020 to take effect from 6 April 2021.

Employees and the self-employed will not pay national insurance contributions (NIC) on the first £9,570 of earnings for 2021/22, an increase of £1 a week.

The employee contribution rate continues to be 12% up to the Upper Earnings limit £50,270, with the self-employed paying 9% on their profits up to the same level. Note that employer contributions will apply to earnings over £170 per week, £8,840 per annum which is also a £1 a week increase.

5% VAT rate for food, attractions and accommodation extended

In order to continue to support businesses and jobs in the hospitality sector, the reduced 5% rate of VAT will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK until 30 September 2021.

The 5% reduced rate of VAT will also continue to apply to supplies of accommodation and admission to attractions across the UK.

From 1 October until 31 March 2022 the rate will be set at 12.5% and will then revert to 20% from 1 April 2022.

VAT registration limit frozen at £85,000 until 1 April 2024

The VAT registration limit normally goes up each year in line with inflation but will remain at £85,000 for a further two years. Arguably this makes it easier for businesses to assess whether or not they are required to register for VAT as it is no longer a moving target.