The UK has a range of tax rates, tax thresholds and tax allowances which affect both individuals and businesses. If you are looking for guidance on the business and personal tax allowance 2021/22 and 2022/23 for England and Wales, please read on.
Working out tax allowances and liabilities can be a real headache, especially when things change as often as they do. And sometimes change back. Here we have set out the UK personal tax allowance for the 2021/22 and 2022/23 tax years.
What is the personal tax allowance?
The UK personal tax allowance, also known as the tax-free allowance, is the amount you’re allowed to earn in a tax year, before you start paying Income Tax. The tax year runs from 6th April to 5th April.
For those on PAYE, the personal allowance is taken into account automatically, with tax deducted at source and shown on the monthly payslip.
The personal tax allowance 2021/22 is £12,750, which is the same as the personal tax allowance 2022/23. The income limit for the UK personal tax allowance is £100,000. For every £2 earned above that, you lose £1 of personal allowance.
For those earning more than £125,140 for both 2021/22 and 2022/23 tax years, there is no allowance. If you claim Marriage Allowance, or Blind Person’s Allowance, your UK personal tax allowance may be increased, so that you can earn more before you start paying tax.
What is the personal tax allowance for the self-employed and company directors?
For sole traders, the UK personal tax allowance 2022/23 is the same at £12,750, as it was for 2021/22, and is taken into account when calculating your tax liability through your Self-Assessment.
Limited company directors are also subject to the same allowance, which applies to earnings from both salaries and dividends as applicable. For company owners considering longer-term planning, setting financial goals can help ensure their income and retirement plans stay on track.
Dividend tax
The tax-free dividend allowance for 2021/22 and 2022/23 is £2,000. Basic rate taxpayers were subject to a 7.5% tax rate for 2021/22, which has increased to 8.75% for 2022/23.
Higher rate taxpayers pay 33.75% for 2022/23 (32.5% for 2021/22), and additional rate taxpayers pay 39.35% for 2022/23 (38.1% for 2021/22).
If you receive dividend payments from a company of which you are a director, you may need to pay personal tax on that income via your Self-Assessment tax return.
For dividends from companies of which you are not a director, if you do not complete a Self-Assessment, you can either request that HMRC changes your tax code if you are paid via PAYE, or if what you receive is above £10,000, then you will need to start completing a Self-Assessment.
The dividend tax rate you pay is based on your total income from all sources, including any salary you take or other earnings from elsewhere, not just on your dividend income.
There is no tax due on dividends received from shares held within an Individual Savings Account (ISA).
What about savers?
There is a Personal Savings Allowance for most taxpayers, which is the maximum amount that can be earned on savings before paying tax. This is dependent on the total taxable income, and is only paid on the interest that exceeds the allowance.
The Personal Savings Allowance for 2021/22 and 2022/23 is £1,000. For higher rate taxpayers, it is £500. There is no allowance for additional rate taxpayers.
For those on a lower income (below £12,570 in the 2021/22 and 2022/23 tax years), the starting rate for savings income applies. This allows you to earn another £5,000 per year in savings interest without paying any tax on it. For every pound you earn above this allowance, you lose a pound of savings allowance.
Need help making the most of the UK personal tax allowance?
The importance of seeking professional, tailored advice to help optimise your tax-free allowances cannot be over-emphasised.
At Partridge Muir & Warren, we have been providing financial planning services Surrey wide since 1969. We offer a comprehensive financial planning service, delivered by a team of highly skilled chartered financial advisers, investment administrators, tax advisers and legal specialists, all dedicated to protecting your wealth, and helping you reach your all-important financial goals.
We are able to work alongside your accountant, if you have one, to further optimise your tax allowances.
If you would like to discuss your current financial position and ensure you are making the most of the UK personal tax allowance, you are welcome to get in touch.