Income tax roundup

Here’s our guide to the changes for 2021, including a personal allowance freeze and Covid-related exemptions

Income tax rates remain unchanged but personal allowance will be frozen for five years

Personal allowance will rise to £12,570 from April 2021. It will subsequently be frozen at this level until April 2026 and no longer adjusted for inflation.

The income tax higher rate threshold will rise to £50,270 from April 2021 and will remain at this level until April 2026. It will no longer be adjusted for inflation.

The starting 0% rate for the savings tax band remains at its current level of £5,000 for 2021/22.

Income tax and NIC exemption for Covid-related expenses continue

Provision of Covid-19 tests by employers or the reimbursement of such costs to employees is exempt from income tax and national insurance contributions. The same exemption applies to the taxation of expenses incurred when working from home due to the pandemic.

Income tax self-assessment penalties regime to be points based

A new penalty regime for late submission of self-assessment tax returns will be points based, proportionate to the amount of tax owed and how late the tax due is. For income tax, this will apply to those with business or property income over £10,000 per year from accounting periods beginning on or after 6 April 2023, and from April 2024 for other tax-payers submitting self-assessment tax returns.

Extended loss carry-back for unincorporated traders will reduce income tax bills

Unincorporated traders will benefit (alongside companies) from a temporary extension of the carry-back trading loss relief. Losses can be carried back against the profits of the previous three years, rather than 12 months (per section 64). This applies to 2020/21 and 2021/22. The amount of the loss is restricted to £2m, although this is unlikely to impact unincorporated traders.