2020/21 Tax Year: 14 Things You Need to Know
By Diana Hurta
17 Mar 2020
@DianaHurta

New tax year in UK brings a raft of tax changes that you simply can’t afford to ignore. We have provided some of 14 key changes.

1. National Living Wage rise

From April 2020 the National Living Wage for those aged 25 and over will increase from £8.21 per hour to £8.72.

2. Income Tax bands no changes

The personal allowance – the amount you earn before you start paying income tax – will be set at £12,500 from April 2020.

 

Band

Tax rate

Income Tax thresholds 2020-2021

Income Tax thresholds 2019-20

Personal Allowance

0%

Up to £12,500

Up to £12,500

Basic rate

20%

£12,501 to £50,000

£12,001 to £37,500

Higher rate

40%

£50,001 to £150,000

£37,501 to £150,000

Additional rate

45%

Over £150,000

Over £150,000

3. National Insurance Contributions (NIC) rise

You pay National Insurance contributions to qualify for certain benefits and the State Pension.

 

NI Class

NI Rate

Nationa Insurance thresholds 2020-2021

Income Tax thresholds 2019-20

Class 1 (Employee)

12%

£9,500 - £50,000

£8,632 - £50,000

Class 1A (Employer)

13,8%

£8,788 - £50,000

£8,632 - £50,000

Class 2 (Self-employed

N/A

profits over £6,475, £3.05 a week

profits over £6,365, £3 a week

Class 4 (Self-employed)

9%

£9,500 - £50,000

£8,632 - £50,000

 

4. Employer Allowance increase

This measure increases the maximum Employment Allowance by £1,000 to £4,000 from April 2020. This means eligible businesses and charities will be able to claim a greater reduction on their Secondary Class 1 National Insurance contributions liability.

5. Automatic Enrolment constributions no changes

By law, under automatic enrolment, minimum pension contributions are required to increase over time on set dates. The minimum contributions employer and staff into automatic enrolment workplace pension scheme from 6 April 2019 is set as:

  • Employer minimum contribution is 3%
  • Employee minimum contribution is 5%

6. Car Tax change

The amount you pay in car tax will change from April 2020, with petrol and diesel vehicles set to cost more to tax on average. This will impact both personal car tax – officially called Vehicle Excise Duty (VED) – and Benefit in Kind (BiK) taxes on company cars.

7. Off-payroll (IR35) working rules will apply in the private sector

Off-payroll working rules reforms postponed until 2021. The rules for engaging individuals through personal service companies are changing. Medium and large-sized businesses are required to carry out off-payroll working rules (sometimes known as IR35) checks.

8. Dividend allowance no change

The dividend allowance will remain at £2,000.

9. Landlords Tax breaks

The tax relief that landlords of residential properties get for finance costs is being restricted to the basic rate of Income Tax. For most landlords, this means interest charges on a mortgage are no longer deductible as an allowable expense. Instead, landlords can claim a basic rate deduction (currently 20%).

10. VAT registration and deregistration thresholds no changes

VAT registration and deregistration thresholds will remain at the current level of £85,000.

11. VAT domestic reverse charges for construction will be introduced

The domestic reverse charge is a major change to the way VAT is collected in the building and construction industry. It comes into effect on 1 October 2020 and means the customer receiving the service will have to pay the VAT due to HMRC instead of paying the supplier. It will only apply to individuals or businesses registered for VAT in the UK (although it will not apply to consumers).

12. Corporation Tax no change

Corporation tax main rate will remain at 19% and will also be set at 19% for the financial year beginning 1 April 2021.

13. Capital Allowances increase in rate of Structures and Buildings Allowances

Businesses that incur qualifying expenditure on the construction, renovation or conversion of non-residential structures and buildings may claim Structures and Buildings Allowances (SBA). From 1 April 2020 for the purposes of corporation tax and 6 April 2020 for the purposes of income tax, businesses may claim an increased annual allowance of 3%.

14. Digital Service Tax is introduced

From 1 April 2020, the government will introduce a new 2% tax on the revenues of search engines, social media services and online marketplaces which derive value from UK users. Businesses will be liable to Digital Services Tax when the group’s worldwide revenues from these digital activities are more than £500 million and more than £25 million of these revenues are derived from UK users.

More information you can find on GOV.UK website.

Tax UK VAT National Insurance LTD Self-employed

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