Income tax and NICs

Income tax rates and allowances

No changes were announced to the income tax rates so that the basic rate of income tax for 2021/2022 will remain at 20%, the higher rate at 40% and the top (or additional) rate of income tax at 45% for English, Welsh and Northern Irish taxpayers (different rates apply to Scottish taxpayers).

However, the Chancellor announced plans to fix a number of allowances and thresholds. Legislation will be introduced in Finance Bill 2021 to set the personal allowance for 2022/23 at £12,570, and the basic rate limit for 2022/23 at £37,700. These thresholds will remain set at £12,570 and £37,700 for 2023 to 2024, 2024 to 2025, and 2025 to 2026, rather than rising in line with CPI.

For a table of the main tax rates and allowances for 2021/2022, click here.

National insurance contributions

No changes to the rates of national insurance contributions were announced for 2021/22. However, in line with the Conservative Manifesto pledge, the 2020 Budget announced the increase in the NICs threshold from £9500 to £9,568 from April 2021. Ultimately, the ambition is to raise the threshold to £12,500, in line with the income tax personal allowance. The national insurance contributions Upper Earnings Limit and Upper Profits Limit are set at £50,270 for 2021/22 and will remain at that level in line with plans to freeze the income tax thresholds.

Off-payroll working (IR35) rules from April 2021

Following last year's postponement, changes to the off-payroll working (IR35) rules placing the obligation to operate the rules on medium and large private sector end clients are coming into force on 6 April 2021.

The government has announced a technical change to the off-payroll working rules to ensure the legislation operates as intended from 6 April 2021.  When the new off-payroll working rules were enacted in Finance Act 2020, there was an unintended widening of the conditions required to be met for the rules to apply in relation to a company intermediary. This would have meant that all agency, umbrella company and secondment arrangements would potentially have been in scope of the off-payroll working rules, which went beyond the intended scope of the policy.

As a result, the government has confirmed that the off-payroll working rules will not apply where either:

• the worker providing services to the end client has no interest in the company intermediary, or
• the worker providing services to the end client has an interest in the company intermediary but that interest is 5% or less and all payments by the intermediary to the worker are taxed as employment income and subject to PAYE.

This should mean that many third party agency, umbrella company and secondment arrangements now fall entirely out of scope of the off-payroll working rules meaning that there is no need to carry out CEST analysis or issue status determination statements where the above conditions are met.

The government has also announced some changes to the provisions governing information flow in supply chains and the provision of fraudulent information. These should assist in the flow of accurate information within supply chains in relation to the operation of the off-payroll working rules.

Coronavirus and employment taxes

The government has announced a number of employment tax relaxations in relation to coronavirus and increased home working by employees.

• Easement for employer provided cycles exemption -- Employees who joined a Cycle to Work scheme and were provided with a cycle or cycling equipment on or before 20 December 2020 will not have to meet the requirement that the cycle and cycling equipment are used mainly for journeys to or from work or in the course of work until 05 April 2022.  The usual requirements continue to apply for employees who joined a Cycle to Work scheme and were provided with a cycle or cycling equipment on or after 21 December 2020.
• Exemption for employer provided and employer reimbursed coronavirus antigen tests -- The income tax and national insurance contributions exemption for employer provided and employer reimbursed coronavirus antigen tests will be extended to cover both the 2020-2021 and 2021-2022 tax years.  The exemption does not apply to coronavirus antibody tests.
• Exemption for employer reimbursed home office expenses -- The temporary income tax and national insurance contributions exemption for employer reimbursed expenses for home office equipment necessary to work from home during the coronavirus pandemic will be extended to 5 April 2022.