As we enter the new 2020/21 UK tax year, we provide an overview of the key changes to the UK tax rules from 6 April 2020, as well as Covid-19 related concessions.
- The anticipated introduction of the off-payroll working rules (IR35) have been put on hold by 12 months, due to the effect Covid-19 is taking on businesses and individuals at this time.
- There are speculations on HMRC making improvements to the apprenticeship levy, however no announcement has been made yet. The levy rate and levy allowance remain at 0.5% and £15,000 respectively for 2020/21.
- Holiday pay for individuals with variable hour contracts will from 6th April 2020 be calculated with reference to the last 52 weeks of employment (currently the calculation is based on the last 12 weeks of employment).
- HMRC are refunding up to 2 weeks of statutory sick pay for those individuals who have been taken ill by Covid-19. This is only available for employers with less than 250 employees and will come into effect once the government has passed the emergency Covid-19 legislation.
- The tax rate for company cars first registered from 6th April 2020 will be reduced by 2 percentage points due to the tighter test system that is in place to measure C02 emissions. For cars already registered, from 6th April 2020 the tax rate will be between 0% – 37% of list price (was 16% – 37% for 2019-20). The diesel supplement is now an additional 4% of list price.
- The van benefit charge is £3,490 and the van benefit fuel charge is £666, both figures are an increase from 2019-20.
- As an employer, if your Class 1 NIC was below £100,000 in 2019/20, you will be able to claim £4,000 as an employer allowance in 2020/21 (up from £3,000).
- Termination payments in excess of £30,000 will be subject to Class 1A NIC from 6th April 2020, which will be collected via in-year PAYE for cash payments, and with current employee Class 1A NIC payments, for any termination benefits in kind.
- From 6th April 2020, personal income tax rates and allowances remain the same as they were for the 2019/20 tax year:
- £12,500 personal allowance
- £2,000 dividend allowance
- £1,000 and £500 savings allowance for basic and higher rate taxpayers respectively
- £37,500 basic rate limit (tax at 20%)
- £150,000 higher rate limit (tax at 40%)
- Income in excess of £150,000 is taxed at the additional rate (45%)
- 7.5%, 32.5% and 38.1% dividend rates for basic, higher and additional rate taxpayers remain the same.
- Capital gains tax rates and allowance also largely remain the same as they were for the 2019/20 tax year:
- £12,300 annual allowance (compared to £12,000 for 2019//20).
- 10% (basic rate) and 20% (higher and additional rate) capital gains tax rates on chargeable gains, excluding gains from residential properties and carried interest.
- As a result of Covid-19, individuals have the option of deferring their second payment on account for 2019/20 from 31 July 2020 to 31 January 2021.
- The pension annual allowance will remain unchanged at £40,000, however the level for which the allowance is phased out has increased from £150,000 to £240,000 for 2020/21. The lifetime pension allowance has also increased for 2020/21, from £1,055,000 to £1,073,100.
- The annual limit for the favourable junior ISA will increase to £9,000 from 6th April 2020 (£4,500 for 2019/20). The annual maximum for usual ISAs remains unchanged, at £20,000.
- 2020/21 is the first year that mortgage interest will not be allowed to be set against rental income on residential properties. This is the end of the phase out of the mortgage interest relief that started in 2017/18.
- The ATED relief that is available for property businesses will have its annual rates increased by 1.7% for 2020/21.
- An increase to the inheritance tax residence nil rate band is coming for 2020/21, changing the limit to £175,000.
- Major changes have been introduced to capital gains tax on the disposal of residential property from 6th April 2020:
- Under principal private residence (PPR) relief, only the last 9 months before sale of an individual’s principal private residence are deemed to be months of actual occupation, rather than the last 18 months.
- The £40,000 letting’s relief that is available to individuals who let out part of their principal residence is now only available for periods where the owner of the property actually occupies the property (i.e: the landlord lives in the property with the tennant).
- The due date for paying capital gains tax on the disposal of a UK residential property is now 30 days after completion, and a standalone UK property tax return is also required to be submitted at this date. These requirements apply to all individuals who dispose of UK residential property, apart from a UK resident individual where there is no capital gains tax due on the disposal (i.e: it is all covered by PPR). This is a major change compared to prior years, where the capital gains tax due on the sale of a residential property would be due with the self-assessment tax return at 31 January following the end of the tax year of sale.
Business & Corporate
- Various Covid-19 reliefs have been announced by the government in the 2020 Spring Budget which will benefit businesses affected by the pandemic. These include:
- £10,000 cash grant will be given to those businesses who can benefit from small business rates.
- Certain businesses with a value of less than £51,000 will benefit from a 100% discount to business rates for 2020/21, regardless of value of the property in the business. These businesses include shops, restaurants and cinemas.
- The rate of UK corporation tax remains at 19%. The previous sought after reduction to 17% has been repealed by the Finance Bill 2019/20.
- The amount of capital losses that a company carries forward to set against chargeable gains will start to be restricted in the 2020/21 tax year. Only losses up to 50% of the chargeable gains will be allowed to be carried forward, subject to a £5 million deduction allowance.
- The lifetime limit for Entrepreneurs Relief (now known as ‘business assets disposal relief’) has reduced from £10 million to just £1 million on 11th March 2020.
- From 6th April 2020 non-resident UK property businesses will come under the scope of UK corporation tax at 19%, rather than being within the scope of UK income tax only.
- For 2020/21, the rate of R&D credit will increase from 12% to 13%.
- Making Tax Digital was widely introduced in April 2019 for VAT registered businesses over the VAT threshold of £85,000. From APril 2020, all businesses are now required to have digital links between all parts of their software and applications.
- Landfill tax rates will increase for 2020/21, the standard rate will be £94.15 per tonne and the lower rate will be £3.00 per tonne.
- Air Passenger Duty will increase for 2020/21, economy travel will go up by £2, higher class travel will go up by £4, and private jets will go up by £13.
- Qualifying pensions will now be included in the UK VAT exemption for the management of special investment funds.
- Following the change in gas and electricity rates, the main rates of climate change levy for gas will increase, and electricity will lower from April 2020.