With the start of the 2020/21 tax year fast approaching, there’s plenty to prepare for. From personal and business tax to sector-specific regulatory changes, here’s what you need to know.
Off-payroll working rules
From 06 April 2020, new off-payroll working rules will come into effect in the private sector. The new rules will place the burden of determining the employment status of a contractor working through a Personal Service Company (PSC) on the employer. If the contractor is deemed to be working as if they are employed by your company, they must be taxed through the PAYE regime. Failure to do so could result in you, the employer, being liable for the underpayment of tax.
Do note, however, that the new legislation only applies to medium and large businesses who meet at least two of the following criteria:
- The company has a turnover of £10.2 million or more
- The company has a balance sheet total of £5.1 million or more
- The company has 50 employees or more
The residence nil-rate band is set to increase from £150,000 per parent to £175,000, meaning a couple can pass down a maximum £1 million tax-free, when combined with the Inheritance Tax threshold.
Corporation Tax will no longer be reduced to 17 per cent as set out in the Finance Act 2016. Instead, the new Government will freeze the rate at 19 per cent for the remainder of the current Parliament.
R&D Tax Credits
To prevent abuse of the SME Research and Development (R&D) tax relief scheme, the amount of payable tax credit that a qualifying loss-making business can receive through the relief in any one accounting period will be capped.
According to the Government, the cap will be three times the company’s total PAYE and NICs liability for that year.
Legal minimum wage
From April 2020, the National Living Wage (NLW) – for workers over the age of 25 – will rise from £8.21 to £8.72 per hour.
For younger workers and apprentices, find the full rates below:
National minimum wage rates :
|Year||25 and over||21 to 24||18 to 20||Under 18||Apprentice|
|April 2019 (current rate)||£8.21||£7.70||£6.15||£4.35||£3.90|
The tiered rates of income tax and NICs will remain the same in the 2020/21 tax year.
The Retail Discount for small business premises with a rateable value of less than £51,000 will be extended, providing a one-third discount on business rates bills.
Pubs, meanwhile, are set to benefit from a £1,000 business rates discount following the announcement of a brand new tax relief.
National Insurance Contributions
Around 31 million people are due a tax cut from April 2020 as the National Insurance Contribution (NICs) threshold rises to £9,500 per year. It means a typical employee will pay around £104 less in tax in 2020/21.
The Employment Allowance will be increased from £3,000 to £4,000, meaning employers will only pay National Insurance Contributions on amounts exceeding the £4,000 threshold.
VAT Reverse Charge
The domestic reverse charge for construction suppliers and contractors will come into effect from October 2020. Originally planned for 2019, the new legislation will require the customer receiving the service to pay the VAT due to HMRC instead of the supplier.
From April, the pensions lifetime allowance will rise in line with inflation to £1.075 million. This increases the lifetime amount of income an individual can deposit into their pension scheme(s) before it attracts income tax. The annual allowance will be frozen at £40,000.
Annual Investment Allowance (AIA)
On 1 January 2019, the AIA was temporarily increased to £1 million for a period of two years, meaning the special rate allowance will expire on 31 December 2020. Regardless of size, businesses can claim 100 per cent upfront AIA relief on qualifying expenditure on plant and machinery up to the specified annual allowance. It is estimated that this will directly benefit the 30,000 UK businesses who exceed the standard £200,000 qualifying expenditure limit each year.
To learn more about the special rate AIA, read our new blog, Could your business save on tax by bringing forward capital purchases this year?
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