New Tax Year: Personal and Business Tax Changes from 6th April 2020

With the new tax year starting on 6th April 2020, it’s important to be aware of the changes in personal and business taxes. Whether you’re a sole trader, small business owner, or an individual, these changes may affect you. It’s important to stay informed to avoid any surprises when it comes to filing your taxes.

As we approach the new tax year, marking key dates and regulatory changes in your calendar is essential. The tax year, running from 6th April to the following 5th April, encompasses several critical deadlines for tax returns and payments. Understanding these timelines ensures you’re well-prepared to meet your tax obligations without facing penalties. Additionally, considering the benefits of paying corporation tax early could lead to financial advantages for your business

Overview of Tax Year and Key Dates

As the new tax year approaches, starting on 6th April 2020, it is important to be aware of the key dates and changes in tax regulations. The tax year runs from 6th April to 5th April the following year, and it is important to understand the deadlines for filing tax returns and paying taxes.

Start of the New Tax Year

The commencement of a new tax year signals updates to tax rates, allowances, and thresholds. For the 2020/21 tax year, individuals and businesses will encounter adjustments that could affect their tax liabilities. Being proactive by reviewing these changes, such as the increase in the personal allowance and basic rate limit, is vital. For businesses, understanding how to claim lunch as a business expense can also provide tax-saving opportunities.

Spring Budget and Key Announcements

The Spring Budget is a significant event that outlines the government’s fiscal strategy and introduces changes to taxation and spending. This year’s budget includes modifications to National Insurance and the High Income Child Benefit Charge, directly affecting taxpayers. For a comprehensive analysis of these changes and their implications, accessing resources like the Complete Self Assessment Tax Return guide can be incredibly helpful.

End of Tax Year Deadlines

The end of the tax year is an important deadline for individuals and businesses. It marks the deadline for filing tax returns and paying taxes for the previous tax year. The deadline for filing online tax returns is 31st January following the end of the tax year. For example, the deadline for filing tax returns for the 2020/21 tax year is 31st January 2022. If you miss the deadline, you may be subject to penalties and interest charges.

Personal Tax Changes

If you are a UK taxpayer, it is important to be aware of the changes in personal tax regulations that will take effect from 6th April 2020. In this section, we will discuss the various changes that will affect your personal tax liabilities, including income tax thresholds and rates, personal allowance and basic rate limit, and national insurance contributions.

Income Tax Thresholds and Rates

The income tax thresholds and rates for the tax year 2020/2021 have been announced by the UK government. The personal allowance, which is the amount of income you can earn before you start paying income tax, will increase to £12,500. The basic rate limit, which is the amount of income you can earn before you start paying the higher rate of income tax, will increase to £37,500. The higher rate tax band will remain at £50,000.

Personal Allowance and Basic Rate Limit

The personal allowance is the amount of income you can earn before you start paying income tax. The personal allowance for the tax year 2020/2021 will increase to £12,500. This means that you will not pay any income tax on the first £12,500 of your income.

The basic rate limit is the amount of income you can earn before you start paying the higher rate of income tax. The basic rate limit for the tax year 2020/2021 will increase to £37,500. This means that you will pay income tax at the basic rate of 20% on income up to £37,500.

National Insurance Contributions

National Insurance Contributions (NICs) are payments made by employees and employers to fund the UK’s social security system. The government has announced changes to the NICs rates and thresholds for the tax year 2020/2021.

For employees, the primary threshold, which is the amount of earnings before you start paying NICs, will increase to £9,500. The secondary threshold, which is the amount of earnings before employers start paying NICs, will increase to £8,788.

For the self-employed, the class 2 NICs rate will increase to £3.05 per week. The class 4 NICs threshold will increase to £9,500, and the class 4 NICs rate will remain at 9%.

Business Tax Reforms

If you’re a business owner, there are several tax reforms that you should be aware of for the new tax year starting on 6th April 2020. Here are the key changes that you need to know about:

Capital Gains Tax Adjustments

As a business owner, you may be liable for Capital Gains Tax (CGT) when you sell or dispose of certain assets. The good news is that the CGT allowance will be increased from £12,000 to £12,500 for individuals and personal representatives, and from £6,000 to £6,250 for most trusts. This means that you can make a profit of up to this amount before you need to pay any CGT.

Corporation Tax and Profits

If you run a limited company, you’ll be pleased to know that the corporation tax rate will remain at 19% for the new tax year. However, if your company makes more than £300,000 in profits, you’ll be subject to a new marginal relief system. This means that the amount of corporation tax you pay will depend on your profits. The more profits you make, the higher your effective tax rate will be.

Basis Period Reform and Overlap Relief

If you’re self-employed or run a partnership, you’ll be affected by the new basis period reform. This means that your taxable profit will be calculated on a tax year basis rather than an accounting period basis. The changes will come into effect from the tax year 2020/21 and will affect businesses that have an accounting period ending on a date other than 31st March or 5th April.

The good news is that overlap relief will be available to help ease the transition. This means that you can claim relief for any overlap profits that you’ve paid tax on in previous years. You can also choose to spread your overlap relief over a number of years to reduce your tax bill.

Employee and Employer Considerations

As the new tax year approaches, starting on 6th April 2020, there are several changes that both employees and employers need to be aware of. In this section, we’ll cover some of the key considerations for both parties.

PAYE and Payroll Changes

If you’re an employer, you need to be aware of the changes to the PAYE tax code that will come into effect in the new tax year. The tax code will increase from 1250L to 1257L, which means that employees will be able to earn more before they start paying tax. This change will affect all employees who are paid through PAYE.

In addition to this, there will also be changes to the way that employers report their payroll information to HMRC. From April 2020, all employers will be required to submit their payroll data in real-time using the Making Tax Digital (MTD) system. This means that you’ll need to make sure that your payroll software is compatible with MTD.

Statutory Sick Pay and Pensions

If you’re an employee, you’ll be pleased to know that the statutory sick pay (SSP) rate will increase from £94.25 to £95.85 per week from April 2020. This means that if you’re off work due to illness, you’ll be entitled to more money to help you get by.

Employers should also be aware of changes to the pensions annual allowance. From April 2020, the annual allowance for pensions will increase from £40,000 to £40,500. This means that you’ll be able to make larger contributions to your pension scheme without incurring tax penalties.

Benefits in Kind and Company Cars

Finally, both employees and employers need to be aware of changes to benefits in kind and company cars. From April 2020, the benefit in kind rate for electric cars will be 0%, which means that employees who use electric cars for work will pay no tax on the benefit. For other company cars, the benefit in kind rates will increase by 1%.

Employers should also be aware of changes to the way that benefits in kind are reported to HMRC. From April 2020, all employers will be required to report their benefits in kind data in real-time using the MTD system. This means that you’ll need to make sure that your payroll software is compatible with MTD.

National Insurance and Allowances

Employee and Employer NICs

From 6th April 2020, the National Insurance contribution (NIC) thresholds for employees and employers will be increased. The primary threshold for employees will be increased to £9,500 per year, while the secondary threshold for employers will be increased to £8,788 per year. This means that you will not have to pay NICs if you earn less than £9,500 per year, and your employer will not have to pay NICs if they pay you less than £8,788 per year.

In addition, the government has announced that it will be abolishing Class 2 NICs from April 2020. This will simplify the system for self-employed individuals who currently have to pay both Class 2 and Class 4 NICs.

Other Tax Considerations

As you prepare for the new tax year starting on 6th April 2020, it’s important to consider other tax implications that may affect you. In this section, we’ll discuss some of these considerations, including inheritance tax and capital gains, ISA allowance and car tax, and Making Tax Digital initiatives.

Inheritance Tax and Capital Gains

If you’re planning to leave an inheritance, it’s important to consider the potential inheritance tax implications. For the 2020/21 tax year, the inheritance tax threshold is £325,000. Any assets above this threshold will be subject to a 40% tax rate. However, there are some exemptions and reliefs available, such as the spouse exemption and the annual gift exemption.

Capital gains tax is another consideration when it comes to inheritance. If you inherit an asset that has increased in value since the original owner acquired it, you may be subject to capital gains tax when you sell it. However, there are some exemptions and reliefs available, such as the annual exempt amount and the principal private residence relief.

ISA Allowance and Car Tax

The ISA allowance for the 2020/21 tax year is £20,000. This means that you can invest up to £20,000 in an ISA without paying tax on any income or capital gains earned from the investment. There are several types of ISAs available, including cash ISAs, stocks and shares ISAs, and innovative finance ISAs.

Car tax is another consideration that may affect you. The amount of car tax you pay depends on the type of vehicle you own, its emissions, and its list price. If you own an electric vehicle, you may be eligible for a reduced rate of car tax or no car tax at all.

Making Tax Digital Initiatives

Making Tax Digital is a UK government initiative that aims to make it easier for businesses and individuals to manage their tax affairs. From April 2020, VAT-registered businesses with a turnover above the VAT threshold will be required to keep digital records and submit their VAT returns using compatible software. This will be followed by other taxes, such as income tax and corporation tax, in the coming years.

It’s important to stay up-to-date with these changes and ensure that you’re compliant with the new requirements. You may need to invest in new software or seek professional advice to help you navigate these changes.

Regional Variations in Taxation

Differences in England, Wales, and Northern Ireland

When it comes to personal and business tax changes for the new tax year starting on 6th April 2020, it is important to be aware of the differences in taxation between England, Wales, and Northern Ireland. While these regions share many similarities in their tax systems, there are some key differences that you should be aware of.

For example, the basic rate of income tax in England, Wales, and Northern Ireland is set at 20%, while the higher rate is set at 40%. However, in Scotland, there are five different income tax bands, with rates ranging from 19% to 46%. These rates apply only to income earned in Scotland, not to income earned elsewhere in the UK.

Another key difference is in the way that property taxes are calculated. In England, Wales, and Northern Ireland, properties worth less than £125,000 are exempt from stamp duty land tax (SDLT), while those worth between £125,001 and £250,000 are subject to a 2% tax rate. In Scotland, the equivalent tax is called the Land and Buildings Transaction Tax (LBTT), and properties worth less than £145,000 are exempt, with those worth between £145,001 and £250,000 subject to a 2% tax rate.

Scottish Parliament Tax Decisions

The Scottish Parliament has the power to set its own income tax rates and bands, which means that there are differences in taxation between Scotland and the rest of the UK. As mentioned earlier, there are five different income tax bands in Scotland, with rates ranging from 19% to 46%. Additionally, the Scottish Parliament has the power to set its own rates for LBTT and landfill tax.

In summary, when it comes to personal and business tax changes for the new tax year starting on 6th April 2020, it is important to be aware of the regional variations in taxation across the UK. While there are many similarities in the tax systems of England, Wales, Northern Ireland, and Scotland, there are also some key differences that you should be aware of. By understanding these differences, you can ensure that you are paying the correct amount of tax and taking advantage of any tax breaks that may be available to you.

Additional Information

State Pension and Age Considerations

If you are reaching State Pension age during the new tax year, you may be eligible for the new State Pension. The State Pension age is gradually increasing, so it’s important to check your eligibility. You can do this by visiting the GOV.UK website.

IR35 and Contract Workers

The IR35 legislation continues to influence the way contractors and freelancers operate, especially with the upcoming changes in April 2021. Navigating these regulations is crucial for maintaining compliance and optimising tax efficiency. For those impacted, exploring options such as working through a limited company under IR35 can offer clarity and direction.

Council Tax and CPI Adjustments

Council Tax is a local tax that is used to pay for local services such as waste collection, street cleaning, and road maintenance. The amount of Council Tax you pay is based on the value of your property and the area you live in. Each year, the government sets a maximum percentage increase that councils can apply to Council Tax rates. For the new tax year, the maximum increase is 2%. Additionally, the Consumer Price Index (CPI) is used to adjust the value of certain benefits and tax credits. For the new tax year, the CPI increase is 1.7%.