Taking some time to start planning for 2021/22 now can be worthwhile.
While there is often a focus on planning for the end of the tax year, much less attention is paid to the start of the tax year. The lack of an obvious deadline is probably one reason – deadlines tend to concentrate the mind. Nevertheless, some planning at the beginning of the year can be a rewarding exercise.
· Estimate your total income for 2021/22 – If you have a rough estimate of what your income will be, it will give you an idea of what to watch out for and what each extra £1 of gross income will be worth. For example, if your estimate is around £50,000, that means you are on the borders of higher rate tax (or well into the 41% band if you are resident in Scotland). £50,000 is also the threshold at which the child benefit tax charge comes into play.
· Check whether you will cover your allowances – The allowances to which you are entitled often depend upon your income, although the £2,000 dividend allowance applies universally. Couples have the opportunity to cover two sets of allowances, possibly by transferring investments between each other or changing from single ownership to joint ownership.
· Check your PAYE code – If you have received a 2021/22 PAYE coding, check that it is correct. The wrong code could mean you pay too much tax during the year.
· Top up your ISA – If it makes tax sense for you to invest in an ISA because of the potential income and capital gains tax savings, then the time to do so is as soon as possible, not just as the tax year end approaches.
· Consider making pension contributions – The sooner your contribution is invested, the longer it benefits from a tax-favoured environment and the less likely it is to be ‘lost’ in other expenditure.
For more 2021/22 tax planning, get in touch now, well ahead of next year’s deadlines.
Social media suggestion Now is the time to start planning for the 2021/22 tax year. #tax #taxyear #financialyear #taxplanning [insert link] 102 characters without link
No tax surprises in Scottish Budget
The draft Scottish Budget has been presented in the Scottish Parliament ahead of March’s Westminster Budget. Income tax rates are unchanged and most tax bands rise in line with inflation. The temporary increase to the starting point for land and buildings transaction tax will end as planned. However, without a working majority, the Scottish Nationalist Party (SNP) will need opposition support to pass its budget.
Job retention schemes have protected the Scottish labour market, so employment is expected to fall by only 1.5% during 2021, with unemployment peaking at 7.6%. Average earnings should grow by 2.6%. The GDP forecast is 2% growth for 2021, but no recovery to pre-Covid-19 levels until 2024.
Tax rates for 2021/22 are:
Taxable income Band Rates
0 to £2,097 Starter 19%
£2,098 to £12,726 Basic 20%
£12,727 to £31,092 Intermediate 21%
£31,093 to £150,000 Higher 41%
Over £150,000 Top 46%
Low earners will pay less tax than the rest of the UK, although those with income above £27,392 will pay more. However, all Scottish taxpayers will pay slightly less tax compared to the current year.
Land and buildings transaction tax
From 1 April 2021, the nil rate threshold reverts to £145,000, with a £175,000 threshold for first-time buyers. There are no other changes; the additional residential property rate remains at 4%.
The basic poundage rate will be cut to 49p so that liabilities for 2021/22 are no higher than before the pandemic.
Various Covid-19 reliefs will continue, although the 1.6% universal relief will end as planned on 31 March 2021. However, 100% relief for the retail, hospitality, leisure and aviation sectors will be extended for at least three more months into 2021/22; to be funded by receipts from businesses repaying relief for 2020/21. Any equivalent extension made by the UK government will be matched. A range of other reliefs are to be introduced in response to current economic conditions.
The Scottish Budget is subject to legislation and could still be amended following the Westminster Budget. Full details, along with supporting documents, are on the Scottish parliament’s website.
Social media suggestion The SNP has presented a #ScottishBudget ahead of Westminster, increasing tax bands with inflation. #tax #reliefs