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Changes to be aware of for the 2020/21 Tax Year

The new tax year starts on 6th April and there are a few significant changes that you should be aware of. We've included some of the key points for you below...

Personal Tax, thresholds and allowances

The personal allowance is the amount you can earn before paying any Income Tax –  this remains at £12,500 for the 2020/21 tax year. The threshold for paying the Higher Rate of income tax (which is 40%) also remains at £50,000. This amount includes the personal allowance.

 

To maximise your tax efficiency as a company Director and Shareholder in the 2020/21 tax year, your company should pay you a salary of £8,788 and dividends of up to £41,212. This allows you to use all of the basic rate band of tax, where you pay tax at 20%, and assumes you have no other income. Your total personal tax bill would then be £2,662.50.

If you take more income in dividends you will pay tax on these at a rate of 32.5% as a higher rate taxpayer.

If you have any questions about how these amounts have been calculated, or you’d like your limited company to pay you more in salary, then you should speak to us for individual, tailored advice.

National Minimum Wage and National Living Wage

Whilst not a tax year change as such (but very much worth noting), the National Minimum Wage and National Living Wage amounts increase from 1st April 2020. The minimum hourly rate that staff are entitled to depends on their age and whether they are an apprentice.

Age band                        From 1st April 2019           From 1st April 2020

Adults Aged  25+                   £8.21                                  £8.72

Adults Ages 21 – 24               £7.70                                  £8.20

18 – 20                                 £6.15                                  £6.45

Under 18<                             £4.35                                  £4.55

Apprentice rate 1                    £3.90                                  £4.15

 

Other personal tax reliefs and allowances

Personal pensions

The tax-free amount you can pay into a personal pension remains at £40,000 for the 2020/21 tax year. The lifetime allowance for pension savings increases from 6th April 2020 to £1,073,100 (from £1,055,000 in the 2019/20 tax year).

 

 

Capital Gains Tax

The Capital Gains Tax annual exempt amount for individuals increases to £12,300 for the 2020/21 tax year (the 2019/20 tax year allowance was £12,000).

Entrepreneurs’ Relief

From 6th April 2020 the Entrepreneurs Relief lifetime allowance limit will be capped at £1 million. This is a significant reduction from the 2019/20 tax year when the limit was £10 million (for disposals pre 11.03.30).

 

Company Cars, Vans and Fuel Benefit

Company cars

From 6th April 2020, Benefit in Kind Tax Rates (BIK) are increasing for company cars. The percentage applied to the list price of the car will increase based on the CO2 emissions published by the VCA. HMRC has published a ready reckoner - use to calculate your company car tax.

Company vans and fuel benefit for company cars

When your company pays for fuel you have used personally or allows personal use of a company van, it is a BiK. These fuel benefit charges only apply if fuel is provided for personal use.

The tax paid on such benefits is being increased from 6th April 2020. The BiK is a fixed amount for vans and the changes are as follows for directors and employees:

  • The BiK on company vans increases to £3,490 (from £3,430)

  • The BiK on fuel for a van provided for personal use increases to £666 (from £655).

The fuel benefit calculation for cars is a little more complex.

A director/employee who is provided with a company car and also receives free fuel from their employer, is taxed on the cash equivalent value of the benefit each tax year.

 

The cash equivalent amount is fixed each year and increases to £24,500 (from £24,100) on 6th April 2020.

The BiK charge is calculated by using an appropriate percentage, which is the same as the rate for company car benefit purposes (see above) and then multiplying by the fixed amount (£24,500 in 2020/21).

 

So if the BiK percentage for your company car is 13%, your BiK amount on the fuel provided for personal use is £3,185 (13% of £24,500).

Student Loans

Student Loan Plan 1 and Plan 2 threshold increase

The Department for Education has confirmed that from 6th April 2020 the earnings threshold before you start to repay a student loan for:

  • Plan 1 loans will rise to £19,390 (from £18,935)

  • Plan 2 loans will rise to £26,575 (from £25,725)

 

If you’re a director being paid salary and dividends from your company, and you’re paying back a student loan, then remember that the threshold for repayment is based on your total income.

This will apply to all current and future student loans where employers make student loan deductions. So if you run a payroll for any employees who have student loan deductions, you need to ensure you have a record of what type of loan they have, so that the correct deductions are made.

Take a look at gov.uk for up to date, further information on this.

 

Postgraduate Master’s Loan and Postgraduate Doctoral Loan (New)

A Postgraduate Master Loan is a new type of loan introduced by the government to help with course fees and living costs while you study a postgraduate master’s course.

 

The repayment of a postgraduate master loan is treated the same as any other Student Loan and interest is charged from the day you get the first payment.

Repayment will be at 6% for students in England and Wales on income above £21,000. The rate is 9% for Scottish and Northern Ireland students with income above £18,330.

Corporation Tax, workplace pensions and allowances

Corporation Tax

Corporation Tax payable on business profits remains at 19%.

Workplace pensions (auto-enrolment)

There are no changes to the minimum amount you need to pay into your employee’s auto enrolment workplace pension. This means the total amount of employer and employee contributions remains a minimum of 8% of your employee’s qualifying earnings.

Date effective                 Total minimum contribution                   Employer minimum contribution           Staff contribute the remainder

Current                                                  8%                                                                 3%                                                      Up to 5%

 

Annual Investment Allowance (AIA)

Companies will be able to claim £1 million as AIA for expenditure incurred between 1st January 2019 and 31st December 2020 on fixed assets such as plant and machinery. The allowance is expected to reduce to £200,000 on 1st January 2021.

Business rates

The government is carrying out a fundamental review of Business Rates, with further consultation expected by Autumn 2020.

From 6th April 2020, businesses in the retail, leisure and hospitality sectors operating from premises with a rateable value of less than £51,000 will not pay any business rates in the year. This includes hotels, restaurants and coffee bars.

The discount that pubs receive on their business rates will increase from £1,000 to £5,000, as long as their rateable value is below £100,000 in England.

Due to the Coronavirus outbreak, a 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in England has been granted.

 

Capital Gains Tax (Information below comes directly from Gov.uk website)

 

From 6 April 2020, if you’re a UK resident and sell a residential property in the UK you’ll have 30 days to tell HMRC and pay any Capital Gains Tax owed.

If you don’t tell HMRC about any Capital Gains Tax within 30 days of completion, you may be sent a penalty as well as having to pay interest on what you owe - so it’s really important that everyone involved in the sale of a residential property fully understands these changes, which affect both UK and non-UK residents.

Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value.

When you need to report Capital Gains Tax within 30 days

If you live in the UK, you may need to report and pay Capital Gains Tax when, for example, you sell or otherwise dispose of:

  • a property that you’ve not used as your main home

  • a holiday home

  • a property which you let out for people to live in

  • a property that you’ve inherited and have not used as your main home

 

But you won’t have to make a report and make a payment when:

  • a legally binding contract for the sale was made before 6 April 2020

  • you meet the criteria for full Private Residence Relief

  • the sale or disposal was made to a spouse or civil partner

  • the gains (including any other chargeable residential property gains in the same tax year) are within your tax free allowance (called the Annual Exempt Amount)

  • you sold the property for a loss

  • the property is outside the UK

 

New online service and updated guidance

HMRC will launch a new online service to allow you to report and pay any Capital Gains Tax owed.

Guidance will be fully updated in April 2020, which will include information on how to access and use the online service.

Non-UK residents

If you’re a non-UK resident you must continue to report sales or disposals of interests in UK property or land, regardless of whether there is a Capital Gains Tax liability within 30 days of completion of the disposal.

You will no longer be able to defer payment of Capital Gains Tax via your Self Assessment return, and any tax owed must be paid within the 30-day reporting and payment period.

This includes disposals of residential properties, non-residential properties and indirect disposals.

From 6 April 2020 non-UK residents will be able to use the new online service, which will replace the current reporting service.

 

Advice for agents

If you act as an agent for a customer who disposes of a UK residential property you will need to:

  • register with Agent Service

  • ensure that any Capital Gains Tax liability due for your client is reported and paid for within 30 days of completion of the disposal

The service will allow you to see previous submissions and amend if necessary.

Trusts

If you are a trustee who sells or disposes of a UK residential property held in a UK resident trust you must ensure that any Capital Gains Tax liability due is reported and paid within 30 days of the completion of the disposal - in the same way as for UK resident individuals.

If you are a trustee, or an agent acting for a trustee, you will need to register the trust on the Trust Registration Service to get a Unique Taxpayer Reference (UTR).

If you are waiting for a UTR, you can use the Temporary Reference Number to access the new Capital Gains Tax Service. If you have already registered the trust you will be able to use your UTR to access the new online Capital Gains Tax service.

If you are a trustee who sells or otherwise disposes of a residential property or commercial property held in a non-UK resident trust, or makes an indirect disposal, you must ensure that any Capital Gains Tax liability due is reported and paid within 30 days of completion of the disposal - in the same way as for non-resident individuals.

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If you require any help navigating your way through this all then please do get in touch, we are here to help. 

Disclaimer: The information contained in this article is intended to be a guide and is not intended to be exhaustive. No action should be taken on the basis of information contained herein without obtaining the necessary advice. No responsibility can be accepted for loss or damages occasioned to any person acting or refraining from acting as a result of the material contained herein.

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