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Income tax personal allowance and national insurance limits for 2021-22

26 November 2020: Hidden in the spending review was a statement that some income tax allowances and thresholds and national insurance limits would increase in line with the September CPI figure. ICAEW’s Tax Faculty explains what this means.

When the government isn’t making bold statements about raising income tax thresholds, the default position is that allowances are uprated in line with September’s consumer price index (CPI). The annual CPI increase to September 2020 was 0.5%.

Income tax personal allowance

When increasing the income tax personal allowance, the increase is rounded up to the next £10 (see s57, Income Tax Act 2007). This means that the personal allowance for 2021/22 should be £12,570 (up from £12,500 in 2020/21).

Income tax basic rate limit

The basic rate limit is always a multiple of £100, and when the limit is increased, the legislation allows for the limit to be rounded up to the next £100 (see s21, Income Tax Act 2007). This means that the basic rate limit for 2021/22 should be £37,700 (up from £37,500 in 2020/21).

National insurance

The Spending Review also confirmed that the government will also use the September CPI figure as the basis for setting all national insurance limits and thresholds, and the rates of class 2 and 3 national insurance contributions for 2021/22.

Process

The Tax Faculty would expect to see draft regulations setting out these amounts relatively swiftly to allow software developers to process software updates ready for April 2021.