The 6th of April feels like it has sneaked up on us, given the current climate. Income tax and personal allowance remain unchanged for the tax year 2020-21. Meaning the basic rate of tax remains at £50,000. However, there is an increase in the national insurance threshold. The planned IR35 reforms have also been postponed.
Tax and NICs
The thresholds for tax remain the same as the 2019-20 tax year. The class 1 national insurance contribution threshold has increased, however. Meaning that we can all earn a little more before having to pay national insurance. The new primary threshold for class 1 NI is £9,500 per year (£792 per month) for employees NI, and £8,788 per year (£732 per month) for employers NI.
For directors who currently pay themselves a monthly salary of £719. This will increase to £732 from the new tax year, with the increase in the NIC threshold.
Please note this increase will not apply to furloughed directors.
National living wage/minimum wage
From 1st April 2020, all hourly minimum rates are increasing, so please do ensure that your salaries and hourly rates are at least those listed below:
- Aged 25 and above (national living wage rate): £8.72
- Aged 21 to 24 inclusive: £8.20
- Aged 18 to 20 inclusive: £6.45
- Aged under 18 (but above compulsory school leaving age): £4.55
- Apprentices aged under 19: £4.15
- Apprentices aged 19 and over, but in the first year of their apprenticeship: £4.15
The employment allowance has increased in the new tax year. Up £1,000 to £4,000.
Workers placed on furlough in the tax year 2019-20 they will not benefit from the increases. Only staff who are currently working will profit.
The tax-free dividend allowance will remain at £2,000 for the 2020-21 tax year.
Basic rate taxpayers will be charged 7.5% on dividends above the £2,000 annual allowance. 32.5% at the higher rate (earnings above £50k). Plus 38.1% at the additional rate for income over £150,000.
Auto-enrolment minimum pension contributions
The minimum contributions for workers who are auto-enrolled into a pension scheme are 3% on earnings above £520 per month for employers. Plus 5% on earnings above £520 per month for employees. Making a total of 8% contributions from both the employer and employee for tax year 2020-21. The upper level of earnings is £4,167 per month, after this, there are no pension contributions deducted on remaining amounts.
The state pension will go up by 3.9%, the biggest rise since 2012. This means those receiving the new state pension (who reached pension age after 6 April 2016) will see an increase of £6.60 a week to £175.20. Those claiming the old state pension will see their basic payment increase by £5.05 a week to £134.25.
The BBC has halted its plans to charge over-75s for the licence fee. The new regime will now be deferred until 1 August 2020.
Pensions annual allowance
People in the UK are able to save a maximum of £40,000 per year into their pension pot. Higher earners are subect to a lower allowance.
Under the previous regime individuals earning above £110,000 would see their annual pension allowance taper off. Somone who earned over £210,000 could only pay £10,000 into a pension each year.
From 6 April 2020 the threshold at which the annual allowance begins to taper off increases to £200,000. An increase of £90,000.
Student and postgraduate loans
From 6th April, the annual thresholds before any deductions are made for student loans will be £19,390 for Plan 1, and £26,575 for Plan 2. Deductions of 9% will be made for earnings above these amounts.
The postgraduate loan annual threshold will stay at £21,000, and earnings above this will be subject to 6% deductions.
Form p11d and p11d(b) or employee/director expenses and benefits
Any employer who provides certain expenses and/or benefits to their employees/directors which are subject to tax has to provide their affected employees with a form P11D and submit a form P11D(b) to HMRC by 6th July. The employer will then be subject to pay the employer’s national insurance on the benefit. The employee will pay the tax either via an adjusted PAYE tax code or by submitting a self-assessment tax return.
Please note, that this doesn’t include expenses already processed through payroll. Such as reimbursing travel costs, bonuses paid through payroll or mileage up to 10,000 miles at 45p and anything over at 25p per mile.
This tax year 2020-21 also sees the culmination of changes to the tax regime for buy-to-let landlords, who are no longer able to claim mortgage tax relief.
Landlords can no longer deduct mortgage expenses from their rental income to reduce the tax they pay. Instead, they will receive a tax credit, based on 20% of their mortgage interest payments.
Landlords selling property will also be affected by new capital gains tax (CGT) rules, which come into effect. From 6 April 2020, if you’re a UK resident and sell a residential property in the UK. Apart from their principal residence, you’ll have 30 days to tell HMRC and pay any Capital Gains Tax owed.
The CGT rates for property will remain the same at 18% for basic rate taxpayers and 28% for higher rate taxpayers. The CGT allowance will increase from £12,000 to £12,300 for individuals.
The coronavirus crisis has seen a deferral of changes to the IR35 regime. Which would have seen private sector employers assume responsibility for determining the tax status of off-payroll workers. These new regulations will now take effect from April 2021
We’re here to help
If you would some further assistance to understand what the mentioned changes mean for your business then please contact us. We would be happy to chat through these with you.
We are also offering a free 15-minute support call to anyone who is struggling with the effects of COVID-19.