Last week the Chancellor, Rishi Sunak announced some changes to the National Minimum Wage and tax-free allowances in his Budget speech.
Below, we breakdown these changes and what they mean for you and your employees.
National Living Wage and National Minimum Wage:
It does not matter how small an employer is, they still have to pay the correct minimum wage. Anyone who is employed as an employee or worker must get either the National Minimum Wage or the National Living Wage depending on the employee’s age.
The different rates are explained as follows:
- National Living Wage – previously the National Living Wage (NLW) was the hourly rate for those aged 25 or over and working in Britain, however, in 2021/22 the age threshold has changed and employers must now pay the National Living Wage to staff who are age 23 and older.
- National Minimum Wage – the National Minimum Wage (NMW) is for those aged under 23. To qualify for the minimum wage, you must be at school leaving age (16 years or older).
- Apprentice rate – apprentices are only entitled to the apprentice rate if they’re either; a) aged 19 or under or b) aged 19 or over and are in their first year of apprenticeship.
Tax thresholds 2021-2022
Personal tax allowance
The personal tax allowance (how much income you can earn in a year before starting to pay income tax on it) is increasing from £12,500 to £12,570 for the 2021/22 tax year.
|So, if you earn £16,000 per year, you will only pay tax on your income above £12,570|
|£16,000 – £12,570 = £3,430|
|The taxable element of your income would be £3,430|
Personal tax allowance for high earners
The Higher Rate threshold (the point at which taxpayers start paying 40% income tax) will increase for the 2021/22 tax year from £50,001 to £50,270.
Income tax rates and thresholds explained
As your earnings increase, the rate of tax that you pay only applies to the proportion of your income which falls within that tax band.
The table below shows what the income tax rates and band thresholds are for the 2021/22 tax year:
|Tax Band||Thresholds for 2021/22|
|Personal allowance |
– how much income you can earn before you start to pay income tax
|£0 – £12,570|
|Basic rate income tax |
– the part of your income in this tax band is taxed at 20%
|£12,571 – £50,270|
|Higher rate income tax |
– the part of your income in this tax band is taxed at 40%
|£50,271 – £150,000|
|Additional rate income tax |
– The income you earn above this threshold is taxed at 45%
So as an example, if you were to earn £60,000 in the 2021/22 tax year, you will pay:
- No tax on the first £12,570
- 20% tax on the part of your income in the Basic rate tax bracket (£12,571 – £50,270) which means you will pay 20% tax on £37,700.
- 40% tax on the part of your income in the Higher rate tax bracket (above £50,271), meaning you will pay 40% tax on £9,730.
If you need advice on any of the above, then please do not hesitate to contact us and one of our team will be happy to assist.