The Budget: six important announcements

On 3 March, Chancellor Rishi Sunak revealed the Budget for the 2021/22 tax year. 

With the help of PayFit's payroll expert, Nichola Hailes, we've highlighted six of the most important announcements. 

Furlough extended

The Coronavirus Job Retention Scheme (CJRS), otherwise referred to as furlough, has been extended until the end of September. 

Initially introduced in March last year, it was only due to run until the end of June 2020. However, the pandemic's continued presence has meant that it has now been extended on no less than five separate occasions.

Furlough will continue on the current terms until 1 May 2021, at which time employers will be able to furlough any employees who were on a Real Time Information (RTI) submission between 20 March 2020 and 2 March 2021.

From the beginning of July, state contributions will decrease from 80% to 70%. This means that employers will be required to contribute 10% of their employees' wages. 

In August, and until the scheme ends in September, state contributions will decrease from 70% to 60% and employer contributions will rise from 10% to 20%.

Minimum Wage increased

As is the case every year, living and minimum wage rates will increase across the board in April 2021.

In the 2020/21 tax year, people aged 25 or older were paid a minimum hourly rate of £8.72 an hour in line with the National Living Wage.

This year, the age bracket has changed to include people aged 23 or more and the new hourly rate for the 2021/22 tax year has increased to £8.91. 

The amendment to the age range for those entitled to National Living Wage comes from recommendations from the Low Pay Commission Report published in December 2020. 

Findings revealed that individuals aged 23-24 in the labour market were treated in much the same way as those aged 25 and above.

Corporation Tax

To offset the country's rising debt, corporation tax on company profits is set to rise from 19% to 25% in April 2023. 

While this increase may concern a lot of employers, smaller businesses will be protected from the increase. 

The current 19% rate will remain in place for firms with profits of £50,000 or less. There will be a gradual increase above this amount meaning that only businesses with profits of £250,000 or greater will be taxed at  25%. This only accounts for roughly 10% of businesses.

Personal allowance frozen

Personal allowance – the amount someone can earn before they begin paying tax – has been frozen at £12,570 until 2026. 

This doesn't necessarily mean that there will be an increase in how much tax an employee pays based on comparable earnings each tax year, but it does mean that the amount of tax-free pay employees will receive will not increase until at least April 2026.

Higher tax rate frozen

The higher tax rate – the rate at which employees move from 20% tax deductions to 40% – will be frozen from 2022 until 2026. 

In the 2020/21 tax year, the rate was £37,500 and there will be a slight increase to £37,701 for the start of the 2021/22 tax year. 

This freeze impacts all taxpayers in the UK, excluding those in Scotland who have their own separate devolved income tax rates.

Apprenticeships and traineeships

Firms that hire apprentices will receive a £3,000 cash incentive. 

Previously this was set at £2,000 per apprentice under 25 and £1,500 for those over 25. 

However, from 6 April, businesses will be able to receive £3,000 regardless of the apprentice's age. 

There will also be a £126m investment towards traineeships.

How can PayFit help?

PayFit provides best-in-class payroll software that helps businesses of all sizes automate their payroll and HR processes. 

Interested in finding out how we can help you save time with payroll? Why not book a demo with one of our product experts today?