Page 11 - Budget 2021

PLANNING POINT

The new loss relief means losses are more valuable and readily usable. Make sure you check your business’s
opportunity to claim back tax if you have made a loss.

Pension Changes

There have been many important pension changes in recent years, with one major measure announced in the 2020
Budget:

• For 2020/21 there was a £90,000 increase to both of the annual allowance tapering trigger points, lifting them to
£200,000 (threshold income) and £240,000 (adjusted income). On the downside, the minimum tapered annual
allowance was cut from £10,000 to £4,000 (for adjusted incomes of £312,000 and over). The changes mean some
higher earners are able to make larger contributions to their pension in this tax year than in 2019/20, although at
the highest level the opposite is true.

• In April 2018, the lifetime allowance started to rise in line with inflation, after a series of cuts that reduced the
allowance from £1.8m to £1.0m. Indexation has now stopped again, meaning that the allowance will stay at
£1,073,100 until 6 April 2026.

• Auto-enrolment minimum contributions into pension arrangements increased in April 2018 and again in April
2019. No further rises are currently scheduled, although it is widely accepted that today’s 8% minimum total
contribution rate is inadequate. Worryingly recent data showed a decline in both employer and employee pension
contributions during the first part of the pandemic.

• The earnings threshold for auto-enrolment in 2021/22 will remain at £10,000, but the upper limit will marginally
rise at £50,270, in line with the higher rate tax threshold (outside Scotland). The lower earnings limit, which sets
the floor for the contribution earnings band, stays at £6,240.

• Changes to the state pension age (SPA) have finished for the time being with men and women currently sharing
the same SPA of 66. The next move to an SPA of 67 is due to be phased in over two years from April 2026.

• From 6 April 2028, the normal minimum pension age for drawing private pension benefits will rise from 55 to 57.

Employer’s National Insurance Contributions

Three years ago the Treasury introduced measures to curtail the use of optional remuneration arrangements (OpRA),
sometimes called cafeteria schemes (when cafeterias were open…). These allowed employees to sacrifice salary for
less highly taxable (and NICable) benefits. Most newly established arrangements are now subject to employer’s 13.8%
NICs (and taxed on the employee) based on the amount of salary given up rather than the notional value of the fringe
benefit (if any). Transitional provisions for pre-6 April 2017 arrangements gave some limited exemptions, notably for
company cars, but these expire on 5 April 2021.

Salary sacrifice for pension contributions remains favourably treated and fully exempt from the rules. Cars with CO2
emissions of 75g/km or less – electric or plug-in hybrids – are also exempt, which helps to explain why Teslas have
become a common sight in the UK.

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