HMRC Rates And Thresholds For The Financial Year 2020/21 in the UK

The 2020/21 tax year is all set to begin from 6 April 2020 to 5 April 2021. The UK has many different tax rates, thresholds, and allowances and as the new tax year starts, many new changes will come in effect that will be affecting both employers as well as employees. However, here we will be discussing the new tax rates and thresholds for the year 2020/2021 that are in effect from 6 April 2020 and will continue until 5 April 2021.

HMRC Rates And Thresholds For The Financial Year 2020/21 in the UK

New Tax Rates and Thresholds 2020/2021 for businesses (employers)

Income Tax that employers deduct from your employees depend on employee’s tax code and their taxable income above their Personal Allowance which is as follows:

England and Northern Ireland:

Employee Personal Allowance
  • £12,500.00 per year
  • £240 per week
  • £1,042 per month
Basic tax rate 20% on annual earnings above the PAYE tax threshold and up to £37,500
Higher tax rate 40% on annual earnings from £37,501 to £150,000

Scotland:

Employee Personal Allowance
  • £12,500.00 per year
  • £240 per week
  • £1,042 per month
Scottish starter tax rate 19% on annual earnings above the PAYE tax threshold and up to £2,085
Scottish basic tax rate 20% on annual earnings from £2,086 to £12,658
Scottish intermediate tax rate 21% on annual earnings from £12,659 to £30,930
Scottish higher tax rate 41% on annual earnings from £30,931 to £150,000
Scottish top tax rate 46% on annual earnings above £150,000

Wales:

Employee Personal Allowance
  • £12,500.00 per year
  • £240 per week
  • £1,042 per month
Welsh basic tax rate 20% on annual earnings above the PAYE tax threshold and up to £37,500
Welsh higher tax rate 40% on annual earnings from £37,501 to £150,000
Welsh additional tax rate 45% on annual earnings above £150,000

Dividend tax rates:

No changes made to the dividend tax rates in the year 2020/21 and the rates are as follows:

  • The tax-free dividend allowance is £2,000
  • Basic-rate taxpayers pay 7.5% on dividends
  • Higher-rate taxpayers pay 32.5% on dividends
  • Additional-rate taxpayers pay 38.1% on dividends.

Emergency tax codes:

Below are the emergency tax codes applicable from 6 April 2020:

  • 1250L W1
  • 1250L M1
  • 1250L X

Employee’s National Insurance contribution thresholds

Employers/businesses can make National Insurance deductions only on earnings that are above the lower-earning limits which are as follows:

Lower earnings limit (Earnings below this limit shall incur no NICs)
  • £120 per week
  • £520 per month
  • £6,240 per year
Primary threshold (Earnings below this limit shall incur no NICs)
  • £183 per week
  • £792 per month
  • £9,500 per year
Upper secondary threshold (under 21) (Earnings that are above the Primary Threshold and below the Upper Earnings Limit will be taxed at 12%.
  • £962 per week
  • £4,167 per month
  • £50,000 per year
Apprentice upper secondary threshold (apprentice under 25)
  • £962 per week
  • £4,167 per month
  • £50,000 per year
Upper earnings limit
  • £962 per week
  • £4,167 per month
  • £50,000 per year

Employer’s National Insurance contribution thresholds

Secondary threshold (Salary payments above this threshold shall incur Employer NICs at a rate of 13.8%)
  • £169 per week
  • £732 per month
  • £8,788 per year

Class 1B National Insurance: PAYE Settlement Agreements (PSAs)

Businesses having PSA can pay Class 1B National Insurance which allows making one annual payment covering all the tax and National Insurance that is due on small or irregular taxable expenses or benefits for your employees. The Class 1B rate is 18.8% for 2020/21.

National Minimum Wage

Employers should be paying their employees National Minimum Wage which is the minimum pay per hour that workers are entitled to by law as follows:

Rates applicable from April 1st, 2020 onwards.

Category of Worker Hourly rate
Aged 25 and above (national living wage rate) £8.72
Aged 21 to 24 inclusive £8.20
Aged 18 to 20 inclusive £6.45
Aged under 18 (but above compulsory school leaving age £4.55
Apprentices aged under 19 £4.15
Apprentices aged 19 and over, but in the first year of their apprenticeship £4.15

Statutory Maternity, Paternity, Adoption, Shared Parental and Parental Bereavement Pay

Employers can claim back SMP, SPP, ShPP, SAP or SPBP from the HMRC as follows:

SMP, SPP, ShPP, SAP or SPBP-the proportion of employer’s payments that can be recovered from HMRC
  • 92%, if total Class 1 National Insurance (both employee and employer contributions) is above £45,000 for the previous tax year
  • 103%, if total Class 1 National Insurance for the previous tax year is £45,000 or lower

Statutory Sick Pay (SSP)

The SSP rate for eligible employees for the year 2020/21 has been increased to £95.85 per week.

Mileage Allowances

Employers can claim mileage allowances (allowance paid to employees for using their own vehicle for business journeys) approved by the HMRC as follows:

Car / van £0.45 for first 10,000 business miles and £0.25 for each mile over 10,000
Motorcycle £0.24 for all business miles
Bicycle £0.20 for all business mile