April marked the beginning of a new financial year in the UK and 2021-2022 brought good news of a 0.5% increase in tax and National Insurance thresholds. However, these will now be fixed for the next five years. So, what does this mean for those in marketing, HR and finance jobs? Here we look at some of the financial factors to consider when assessing your take home pay.
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%.
Personal allowances
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.
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.
The National Living Wage and National Minimum Wage
The National Minimum Wage applies to workers aged 18-20. Whereas the National Living Wage applies to workers aged 21 and over. As of April 2024, the NLW AND NMW is as follows:
Age 21 and over - £11.44 per hour
Age 18 to 20 - £8.60 per hour
Under 18 - £6.40 per hour
For the most up-to-date National Living/Minimum Wages, click here.
Dividends
If you have dividends, perhaps as a benefit from the company you work for, the tax-free Dividend Allowance for the 2024/2025 tax year is £500. The rate of tax you pay on any dividends over this amount will depend on your income tax band. Basic rate taxpayers pay 8.75% on dividends, higher-rate taxpayers 33.75% and additional rate taxpayers pay 39.35%.
Pensions
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.
Student Loans
As of April 2024, the student loan thresholds are:
- Plan 1 loan is £24,990 per year
- Plan 2 is £27,295 per year
- Postgraduate is £21,000 per year
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.
Whether you're looking for more career advice or the right job, we're here to support you. Contact us or browse our available jobs.
