A new tax year began on April 6th. It will introduce more than a few dramatic changes you should be aware of as a business owner. To help you get ready for the 2020/21 tax year, we have prepared a round-up of these key changes.
Off-Payroll Reforms (IR35)
IR35 reforms have been delayed as a result of Coronavirus, which means that if you’re a private sector contractor, you remain responsible for determining your IR35 status and paying the correct tax. The new rules, which mean liability moves to end hirers and employment agencies, will come into force in April 2021.
COVID-19: Support for Businesses
New schemes for employers, business owners and the self-employed have been introduced to alleviate the impact of the pandemic.
National Insurance Threshold for Self Employed
A higher National Insurance threshold was introduced this tax year for the self-employed. It covers ‘Class 2’ tax band, ‘Class 2 NI per week’ and ‘Class 4’.
For additional figures, see the National Insurance and Tax Bands table, below.
VAT payments have been delayed until at least June, but be aware it’s likely you’ll need to catch up by 31st March 2021. Don’t forget, this VAT doesn’t disappear, but is delayed in collection, so prepare and submit your returns in the usual way.
Additionally, reverse charge for VAT-registered members of the Construction Industry Scheme (CIS) has been delayed until 1st October 2020.
Benefits in Kind on Company Cars – Electric Vehicles
From the 6th April Benefit in Kind (BIK) rates will increase across the board. The benefit in kind rates for all-electric cars is reducing from 16% to 0%, which will result in significant tax and National Insurance contribution (NIC) savings. The BIK rate for an all-electric car, is currently expected to then rise by 1% in 2021-22 and a further 1% in 2022-23. This rate should then be sustained through to the tax year ended 2024-25.
For low emission and all-electric vehicles, businesses can claim Enhanced Capital Allowances (ECA) which work very much like first year allowances. In the first year of purchase, ULEVs (Ultra Low Emission Vehicles) are eligible for a 100% allowance providing that they are purchased brand new (not used or second hand).
Read more about the change in company car, tax benefit system.
Corporation tax was due to decrease from 19% to 17% on 1st April but these plans were cancelled in last month’s budget. The Government has also said the Corporation Tax will remain at 19% for the financial year 2021/22.
If your business is impacted by COVID-19, you can make an arrangement with HMRC to pay over a longer time period. You will have to explain why you are affected and then agree a deferred payment plan based on what you now expect to be able to afford. It will be sensible to check with your accountant what your liabilities are, allowing for the changes to VAT above, before calling. Please note that HMRC will want to make these agreements with you, not your accountant.
You can learn more about how Corporation Tax works, in our latest guide.
Personal Tax Allowance and Dividend Allowance
The Personal Tax Allowance (the amount you can earn before paying Income Tax) will remain at £12,500. The higher rate tax threshold (the amount at which you start paying tax at 40% or 32.5% on dividends) will remain at £50,000. This means that you can take a basic salary of £8,784 (£732 per month) and dividends of £41,216 before you pay any higher rate tax.
For more details, check our updated blog post about Dividend tax rates and thresholds for 2020/21.
Payments on Account Extension
Personal tax instalments due in July 2020 will now not be payable until January 2021. Again, the tax will be due, but not for an extra six months.
Capital Gains Tax
Capital Gains Tax allowance, the amount you can make from the increased value of your possessions before you pay tax, has increased from £12,000 to £12,300. If you make a taxable capital gain from UK residential property you will have to pay the tax you owe within 30 days of the completion of the sale instead of adding to your self-assessment tax bill.
The government has decided to increase the Employment Allowance for employers from £3,000 to £4,000, thus decreasing their National Insurance liability.
Entrepreneurs’ Relief enables you to pay less capital gains when you sell or give away your company. Now, eligible individuals will pay 10% on the first £1m of gains when selling a qualifying business. Anything above £1m will be taxed at normal capital gains rates of 10% or 20% for higher-rate taxpayers.
MTD – Making Tax Digital
The Government has announced that it will delay Making Tax Digital for VAT, until 2021. The requirement for VAT registered businesses to have software in place that links VAT returns to the original invoice detailing the VAT charge will now be postponed.
You can learn more on our latest Making Tax Digital guide for small businesses.
Pensions & Investments
You can continue to pay a tax-free amount of £40,000 per year into a personal pension. The lifetime allowance for pension savings has increased from £1,055,000 in 2019/20 to £1,073,100 in 2020/21. There is no change to employee or employer contributions to auto-enrolment workplace pensions which remain at 5% and 3% respectively.
You can save tax-free with an ISA up to a maximum of £20,000, this limit remains unchanged from 2019/20.
Work At Home Tax Relief
The standard HMRC approved rate of £4 per week, has been increase to £6 per week, £312 for the year. We will automatically adjust for this in your accounts. If you currently claim a custom home as office amount, please check that this is still more beneficial.
Business rates retail discount for properties with a rateable value below £51,000 will get 100% relief.
National Insurance Tax Break for Veterans Employers
To support the employment of veterans, the government is meeting the commitment to introduce a National Insurance tax break for employers of veterans in their first year of civilian employment.
Digital Service Tax
The government will introduce a new 2% Digital services tax (DST) on the revenues certain digital businesses earn from 1 April 2020.
Tax and National Insurance Bands
England, Northern Ireland & Wales
|Higher rate tax band||£50,000||£50,000|
|Class 2 NI||when profits exceed £6,475||when profits exceed £6,365|
|Class 2 NI per week||£3.05||£3.00|
|Class 4 NI||when profits exceed £9,500||when profits exceed £8,632|
Scotland (these changes come into force on 11th May 2020)
|Personal allowance||0 – £12,500||0 – £12,500|
|Starter rate 19%||£12,501 – £14,485||£12,501 – £14,549|
|Basic rate 20%||£14,586 – £25,158||£14,550 – £24,944|
|Intermediate rate 21%||£25,159 – £43,430||£24,945 – £43,430|
|Higher rate 41%||£43,431 – £150,000||£43,431 – £150,000|
|Top rate 46%||over £150,000||over £150,000|
National Minimum Wage/National Living Wage rates
|Apprentice rate 1||£4.15||£3.90|
|Employees aged under 18||£4.55||£4.35|
|Employees aged 18 – 20||£6.45||£6.15|
|Employees aged 21 – 24||£8.20||£7.70|
|Higher rate 41%||£43,431 – £150,000||£43,431 – £150,000|
|Employees aged 25+||£8.72||£8.21|
Student loan repayments will be due when income reaches the following thresholds.
|Undergraduate loan: plan 1||£19,390||£18,935|
|Undergraduate loan: plan 2||£26,575||£25,725|
Here to help your business
If you have any questions about the new tax year, please do get in touch. You may also find it helpful to visit the HMRC site.