April 6th signalled the start of a new tax year. Here’s a round-up of the key changes you need to be aware of.
- Higher National Insurance threshold for the self-employed.
- Employment Allowance, which is a reduction in employer’s National Insurance, has increased from £3,000 to £4,000
- Working from home costs – proof required for expenses above £6 per week or £26 per month (previously £4 per week or £18 per month)
- Entrepreneurs’ Relief reduced by 90%.
- VAT reverse charge for VAT-registered members of the Construction Industry Scheme (CIS) has been delayed until 1st October 2020.
- 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.
- New schemes for employers, business owners and the self-employed have been introduced to alleviate the impact of the Government’s measures to stem the impact of the pandemic.
Tax and National Insurance bands – England, Northern Ireland and Wales
- Personal allowance remains the same at £12,500
- Employees’ NI threshold increased to £9,500 from £8,632
- Employers’ NI threshold increased to £8,788 from £8,632
- Higher rate tax band remains at £50,000
- Class 2 NI – when profits exceed £6,475, up from £6,365
- Class 2 NI per week now up 5p to £3.05
- Class 4 NI – when profits exceed £9,500, up from £8,632
Scotland (these changes come into force on 11th May 2020)
- Personal allowance remains up to £12,500
- Starter rate 19% – £12,501 – £14,485 (£12,501 – £14,549 last year)
- Basic rate 20% – £14,586 – £25,158 (£14,550 – £24,944 last year)
- Intermediate rate 21% – £25,159 – £43,430 (£24,945 – £43,430 last year)
- Higher rate 41% – £43,431 – £150,000 (same as last year)
- Top rate 46% – remains the same at £150,000+
National Minimum Wage/National Living Wage rates
- Apprentice rate 1 increased to £4.15 from £3.90
- Employees aged under 18 increased to £4.55 from £4.35
- Employees aged 18 – 20 increased to £6.45 from £6.15
- Employees aged 21 – 24 increased to £8.20 from £7.70
- Employees aged 25+ increased to £8.72 from £8.21
- Student loan repayments will be due when income reaches the following threholds
- Undergraduate loan: plan 1 – £19,390 (£18,935 last year)
- Undergraduate loan: plan 2 – £26,575 (£25,725 last year)
- Postgraduate loan – £21,000 (same as last year)
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. You can read more here.
The tax-free dividend allowance remains at £2,000 for the new tax year.
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.
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 tax payers.
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.
Here to help
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.