Let’s look at some key thresholds for this tax year
Will your earnings exceed any of these amounts in 2021-22?
Knowing these thresholds could help minimise your Tax Liabilities this year.
£100,000 – Loss of income tax personal allowance
Your income tax personal allowance – £12,570 for 2021-22 – will be reduced by £1 for every £2 your adjusted net income exceeds £100,000.
If your projected earnings for the current tax year are expected to be in excess of £100,000, perhaps for the first time, you still have three months to consider planning options to help you avoid this potential reduction in your personal allowance for 2021-22.
It is worth considering ways to avoid this as the effective rate of income tax you will pay if your earnings fall between £100,000 and £125,140 is 60%. This is because as your personal allowance reduces, you not only lose the tax relief this has previously afforded, but the increase in taxable income will be subject to higher rate tax.
£50,000 – Payback of Child Benefit payments
If either parent’s taxable income exceeds £50,000, HMRC will be entitled to a full or part-repayment of any Child Benefits (CBs) they may have received during the current tax year.
CBs will be repayable at the rate of 1% of the amount received for every £100 of income in excess of the £50,000 limit. This means that once income is in excess of £60,000, all CBs received will be recovered. If affected, you can cancel receipt of future CBs, but this may not be advisable for NIC reasons.
HMRC will make a tax charge called the High-Income Child Benefit Charge (HICBC) to recover any CBs repayable. The parent with the highest income in excess of £50,000 will have to declare their need to repay CBs by submitting a self-assessment tax return.
£37,700 – Income subject to tax at higher rates
If your taxable income, after deducting your personal allowance, exceeds this amount you may be subject to income tax at higher rates.
There are strategies that may reduce this higher rate tax charge and keep you within lower rates of tax.
Please note that regional differences may apply where assemblies set their own income tax rates.
£50,000 – Payback of Child Benefit payments
If either parent’s taxable income exceeds £50,000, HMRC will be entitled to a full or part-repayment of any Child Benefits (CBs) they may have received during the current tax year.
CBs will be repayable at the rate of 1% of the amount received for every £100 of income in excess of the £50,000 limit. This means that once income is in excess of £60,000, all CBs received will be recovered. If affected, you can cancel receipt of future CBs, but this may not be advisable for NIC reasons.
HMRC will make a tax charge called the High-Income Child Benefit Charge (HICBC) to recover any CBs repayable. The parent with the highest income in excess of £50,000 will have to declare their need to repay CBs by submitting a self-assessment tax return.
£37,700 – Income subject to tax at higher rates
If your taxable income, after deducting your personal allowance, exceeds this amount you may be subject to income tax at higher rates.
There are strategies that may reduce this higher rate tax charge and keep you within lower rates of tax.
Please note that regional differences may apply where assemblies set their own income tax rates.
This information is subject to change and is not professional advice. Refer to our disclaimer for more details.
