With the new tax year already started, lets have a look at what may have changed for taxpayers ?

The amount of tax you pay over the next 12 months will depend on your where you live in the U.K. For those who live in England, Wales or NI, there are three tax rates: basic, higher and additional rate and for people who live in Scotland (there are five different bands: starter, basic, intermediate, higher and top). All bands also have the Personal Allowance – the amount of income you can receive tax-free.

Income Tax

The Income Tax bands for 2020/21 will remain the same as 2019/20. These apply if you live in England, Wales or Northern Ireland. They are as follows

Bands and ratesTaxable income
Personal Allowance£12,500
Basic rate (20%)£12,501-£50,000
Higher rate (40%)£50,001-£150,000
Additional rate (45%)£150,000+

The Personal Allowance is how much you can earn tax-free – that is, without having to pay Income Tax. Then, with the marginal bands, you only pay this tax rate on the portion of earnings which rise above your allowance.

For example, if you were to have a taxable income of £35,000, you would pay 20% Income Tax on £22,500 (£35,000 minus the Personal Allowance of £12,500).

So not much has changed if you live in England, Wales, but what about if you live in Scotland? In this situation, your Personal Allowance is the same as the rest of the UK, as is the tax you pay on dividends and savings interest. However, you’ll pay Scottish Income Tax.

The Scottish Budget has proposed new tax bands for 2020/21, but these may not come into effect as Scottish Parliament must agree to them, although there may be an adjustment to the Personal Allowance. 

These are the proposed new bands in comparison to those of the last tax year:

Bands and ratesTaxable income 2019/20Taxable income 2020/21
Starter rate (19%)£12,501-£14,549£12,501-£14,585
Basic rate (20%)£14,550-£24,944£14,586-£25,158
Intermediate rate (21%)£24,945-£43,430£25,159-£43,430
Higher rate (41%)£43,431-£150,000£43,431-£150,000
Top rate (46%)£150,000+£150,000+

National Insurance

The amount of National Insurance you pay also depends on how much you earn, as well as if you are employed or self-employed.

For most people who are employed, they are as follows for the 2019/20 and 2020/21 tax years.

RatesEarnings per week (2019/20)Annual salary (2019/20)Earnings per week (2020/21)Annual salary (2020/21)
0%Below £166Below £8,632Below £183Below £9,500
2% (on top of the 12%)£962+£50,000+£962+£50,000+

The National Insurance rates are different if you’re self-employed, and therefore so is your tax bill.

Instead of Class 1 National Insurance Contributions (NICs), you’ll pay Class 2 (unless you earn less than £6,475 a year) and 4 (if you earn profits over £9,500 a year). These are on your self-employed earnings, which means you need to take away your expenses as tax relief to work out your taxable income.

Class 2 NIC rates for the previous and following 12 months are:

YearSmall profits thresholdRates
2019/20£6,365+£3 per week
2020/21£6,475+£3.05 per week

And Class 4 NIC rates for 2019/20 and 2020/21 are:

Annual profits 2019/20Annual profits 2020/21Rates
£50,000+£50,000+2% on top of the 9% on profits)

Scottish National Insurance rates are the same as those in Northern Ireland, England and Wales.

Capital Gains Tax

If you either sell or give away an asset that is worth more than £6,000, then you may potentially need to pay Capital Gains Tax (CGT).

HMRC’s existing criteria stipulates what you pay on CGT . Plus, whether you are required to pay the tax depends on the annual exempt amount. For 2019/20 and 2020/21, it is set at £12,300. In terms of CGT rates, this will depend on what sort of taxpayer you are:

Type of taxpayer
(on gains from residential property)
(on gains from other chargeable assets)
Higher or additional rate28%20%
Basic rate18%10%

While the Scottish Income Tax brackets are different, when it comes to National Insurance and CGT, the bands and rates remain the same.

What will BE the impact of the 2020/21 tax changes ?

The Income Tax bands are applicable to non-savings, non-dividend income in England, Wales and Northern Ireland, as well as savings and dividend income in the UK.

The result is that aprox 30 million people will benefit in comparison to the previous year. Aprox 26 million basic-rate taxpayers will receive an average gain of £20. Aprox 4 million higher-rate taxpayers will get an average real gain of £228. And additional-rate taxpayers will be recipients of a £169 average real gain.

It’s anticipated that there will be 148,000 fewer people who would be legally required to pay Income Tax, and 314,000 individuals will no longer be expected to pay tax at the higher rate.

As a result (mostly) of the increases in the Upper Profits and Upper Earning Limits for National Insurance, 901,000 people are expected to have an average real loss of £64 in the 2020/21 tax year.

So mixed results but most people unless their earnings significantly change in the 2020/21 Tax year remain in the same tax bands.