Income tax rates and allowances
Everyone has to pay income tax on the money they make, but how much you pay is determined by the amount you earn and the allowances you receive. If you are just starting out in your marketing, HR or finance career, it is likely that you are a basic rate taxpayer. This means that you pay 20% tax on the money you earn, after allowances. If you earn a higher salary, then a portion of your earnings will be taxed at the higher rate of 40%. For high earners, taxable income over £150,000 is at the additional rate of 45%.
Most people can earn a certain amount of money before they have to pay tax. For the 2021-2022 tax year, the tax-free personal allowance throughout the U.K. has increased from £12,500 to £12,570. This does, however, have an income limit. As you get into higher earnings levels, income over £100,000 reduces your personal allowance by one pound for every two pounds of income.
The threshold for paying the higher rate of income tax has also increased for the new tax year, from £50,000 to £50,270.
Further allowances you may be eligible for include:
Marriage Allowance - If one partner in a marriage earns below their personal allowance, they can transfer up to £1,260 of their allowance to their partner, resulting in the couple paying less tax overall.
Blind Persons Allowance - This can be claimed by anyone registered blind or severely sight impaired. It has increased by £20 to £2,520 in 2021-2022. This figure is added to the annual Personal Allowance.
Guardian’s Allowance - You may be able to claim this if you are the legal guardian, responsible for bringing up a child. For 2021-2022 this has risen from £17.90 a week to £18.00 a week.
Tax rates and bands
The 2021-2022 tax rates and bands for England, Wales and Northern Ireland, are as follows:
Personal allowance - 0% tax on annual earnings up to £12,570
Basic rate - 20% tax on annual earnings between £12,571 and £50,270
Higher tax rate - 40% on annual earnings between £50,271 and £150,000
Additional tax rate - 45% on annual earnings over £150,000
The situation in Scotland is slightly different as they also have a starter tax rate and intermediate tax rate. Find out about income tax in Scotland here.
The threshold figures for these tax bands will remain the same until 2026, so it is important to keep your tax rate in mind when looking at a job change or promotion. A raise in salary could affect your tax band and consequently your income, so it is important to consider how this can affect your actual take home pay. As Finance and HR professionals it is also important to stay up to date with changes to rates and thresholds to enable you to assist and advise staff members on these matters.
To find out what you could expect to earn in specific marketing, HR or finance jobs, the Tate Salary Benchmarking tool is a useful resource for comparing pay rates.
You can check your tax code and personal allowance using the tool on the government website here.
National Insurance and other tax rates
In addition to income tax thresholds, Class 1 National Insurance rates have also increased for 2021-2022. The Primary Threshold (PT) at which employees start paying National Insurance rose from £792 to £797 per month. National Insurance is deducted from your pay at a rate of 12%.
At the other end, the Upper Earnings Limit (UEL) over which employees pay a lower rate of National Insurance also increased from £4,167 to £4,189 for the new tax year. National Insurance is deducted at a rate of 2% above the UEL.
Other financial considerations
Whether you are a permanent employee or working with Finance, HR recruitment agencies or Marketing recruitment agencies like us, it is important to be aware of all aspects of your financial responsibilities. Below are some other items you may need to consider. For those working in finance jobs, particularly where payroll is part of your responsibilities, it is important to keep up to date with these.
Changes to National Living Wage and National Minimum Wage
An important point to note about the National Living Wage, is that from 1 April 2021 it applies to those aged 23 and above, where previously it was for 25 year olds and over. The National Living Wage for 2021-2022 is £8.91 per hour, an increase from £8.72. The National Minimum has also increased across all age categories.
Age 21 to 22 - £8.36 (up from £8.20)
Age 18 to 20 - £6.56 (up from £6.45)
Under 18 - £4.62 (up from £4.55)
For the most up-to-date National Living/Minimum Wages, click here.
If you have dividends, perhaps as a benefit from the company you work for, the tax-free Dividend Allowance remains unchanged at £2,000. The rate of tax you pay on any dividends over this amount will depend on your income tax band. Basic rate taxpayers pay 7.5% on dividends, higher-rate taxpayers 32.5% and additional rate taxpayers pay 38.1%.
If you have a workplace pension, there are no changes to the minimum contribution of 8% of your qualifying earnings. Your employer’s minimum payment is still at 3% with your own contribution making up the rest.
If you have a student loan it is important to know that the earnings threshold before repayments start has been increased for 2021. The new threshold for Plan 1 loans is £19,895, up from £19,390 and the threshold for Plan 2 loans is £27,295, up from £26,575.
The Coronavirus Job Retention Scheme has been extended until the end of September 2021. Throughout the scheme the government contribution has been 80% of the wages for furloughed employees, up to £2,500 per month. From July 2021 employers will be expected to meet part of the costs, paying 10% in July and 20% in August and September.
Benefits in Kind
When considering your overall income, it is important to also note that you must pay tax on certain Benefits in Kind received from your employer. This can include things such as a company car, medical insurance, loans, discount vouchers and travel allowances. These are reported by your employer on a P11D form and the relevant amount of tax will be deducted from your pay.
An initiative that can benefit you in terms of health and wellbeing, as well as a tax benefit, is the government Cycle to Work Scheme. By registering through your employer, you can save money on equipment and travel expenses, whilst also getting fit and helping the environment. Learn more here.