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Personal and business tax changes for the new tax year starting on 6th April 2020

Posted by Tom West on Mar 13th, 2020 | Tax

UK Money | End of tax year changes 5th April 2018 | Crunch

The 2020/21 tax year commences on 6th April 2020. We’ve put this article together to highlight the main changes affecting individuals and businesses.  We also have an article to help business get ready for the end of the tax year and a 2020 Budget highlights article. If you’re looking for inspiration for 2021 you should take a look at our New Tax Year New You article.

We’ve got a separate article that contains all the tax rates, thresholds and allowances for 2020/21 and 2019/2020.

The Personal Allowance – the amount you can earn before paying any Income Tax –  remains at £12,500 for the 2020/21 tax year. The threshold for paying the Higher Rate of income tax (which is 40%) also remains at £50,000. This amount includes the Personal Allowance.

You can check out our tax rates and thresholds article for more information on the income tax rates.

To maximise your tax efficiency as a company Director and Shareholder in the 2020/21 tax year, your company should pay you a salary of £8,788 and dividends of up to £41,212. This allows you to use all of the basic rate band of tax, where you pay tax at 20%, and assumes you have no other income. Your total personal tax bill would then be £2,662.50.

If you take more income in dividends you will pay tax on these at a rate of 32.5% as a higher rate taxpayer. Our Crunch Personal Tax Estimator can help you get a more personalised calculation.

If you have any questions about how these amounts have been calculated, or you’d like your limited company to pay you more in salary, then you should speak to an accountant for tailored advice. If you don’t have an accountant or are looking to switch, give our friendly team a call on 0333 311 8000 or arrange a free consultation.

Scottish Income Tax

If you are resident in Scotland, you pay different income tax rates, some of the thresholds are amended for the 2020/21 tax year:

2019/20 tax year 2020/21  tax year
Band name Tax Rate Bands and Thresholds
Starter rate 19% £12,501* – £14,549 £12,501* – £14,585
Basic rate 20% £14,550 – £24,944 £14,550 – £25,158
Intermediate 21% £24,945 – £43,430 £25,159 – £43,430
Higher rate 41% £43,431 – £150,00 £43,431 – £150,000
Additional rate 46% Over £150,000 Over £150,000

*Personal Allowance  of £12,500 (same as 2019/20 tax year)

The Personal Allowance is reduced by £1 for every £2 earned over £100,000. This is the same as the rest of the UK.

Dividend Allowance

The tax-free Dividend Allowance for the 2020/21 tax year remains at £2,000.

Whilst not strictly a tax year change, National Minimum Wage and ‘National Living Wage’ amounts increase from 1st April 2020. The minimum hourly rate that your staff are entitled to depends on their age and whether they are an apprentice.

Age band From 1st April 2019 From 1st April 2020
Adult rate 25+ £8.21 £8.72
Adult rate 21 – 24 £7.70 £8.20
18 – 20 £6.15 £6.45
Under 18< £4.35 £4.55
Apprentice rate 1 £3.90 £4.15

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Company cars

From 6th April 2020, benefit in kind (BiK) tax rates are increasing for company cars. The percentage applied to the list price of the car will increase based on the CO2 emissions published by the Vehicle Certification Agency. HMRC has published a ready reckoner you can use to calculate your company car tax.

Company vans and fuel benefit for company cars

When your company pays for fuel you have used personally or allows personal use of a company van, it is a BiK. These fuel benefit charges only apply if fuel is provided for personal use.

The tax paid on such benefits is being increased from 6th April 2020. The BiK is a fixed amount for vans and the changes are as follows for directors and employees:

  • The BiK on company vans increases to £3,490 (from £3,430)
  • The BiK on fuel for a van provided for personal use increases to £666 (from £655).

The fuel benefit calculation for cars is a little more complex.

A director/employee who is provided with a company car and also receives free fuel from their employer, is taxed on the cash equivalent value of the benefit each tax year. The cash equivalent amount is fixed each year and increases to £24,500 (from £24,100) on 6th April 2020.

The BiK charge is calculated by using an appropriate percentage, which is the same as the rate for company car benefit purposes (see above) and then multiplying by the fixed amount (£24,500 in 2020/21). So if the BiK percentage for your company car is 13%, your BiK amount on the fuel provided for personal use is £3,185 (13% of £24,500).

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Self Assessment - Get the lowdown!

Student Loan Plan 1 and Plan 2 threshold increase

The Department for Education has confirmed that from 6th April 2020 the earnings threshold before you start to repay a student loan for:

  • Plan 1 loans will rise to £19,390 (from £18,935)
  • Plan 2 loans will rise to £26,575 (from £25,725).

If you’re a director being paid salary and dividends from your company, and you’re paying back a student loan, you must remember the threshold for repayment is based on your total income.

This will apply to all current and future student loans where employers make student loan deductions. So if you run a payroll for any employees who have student loan deductions, you need to ensure you have a record of what type of loan they have, so that the correct deductions are made.

We’ve also written a more detailed article on Student Loan repayments.

Postgraduate Master’s Loan and Postgraduate Doctoral Loan (New)

A Postgraduate Master’s Loan is a new type of loan introduced by the government to help with course fees and living costs while you study a postgraduate master’s course. The repayment of your Postgraduate Loan is treated the same as any other Student Loan and interest is charged from the day you get the first payment.

Repayment will be at 6% for students in England and Wales on income above £21,000. The rate is 9% for Scottish and Northern Ireland students with income above £18,330.

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Personal pensions

The tax-free amount you can pay into a personal pension remains at £40,000 for the 2020/21 tax year. The lifetime allowance for pension savings increases from 6th April 2020 to £1,073,100 (from £1,055,000 in the 2019/20 tax year).

Capital Gains Tax

The Capital Gains Tax annual exempt amount for individuals increases to £12,300 for the 2020/21 tax year (the 2019/20 tax year allowance was £12,000).

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From 6th April 2020 the Entrepreneurs Relief lifetime allowance limit will be capped at £1 million. This is a significant reduction from the 2019/20 tax year when the limit was £10 million.

Corporation Tax

Corporation Tax payable on business profits remains at 19%.

Workplace pensions (auto-enrolment)

There are no changes to the minimum amount you need to pay into your employee’s auto-enrolment workplace pension. This means the total amount of employer and employee contributions remains a minimum of 8% of your employee’s qualifying earnings.

 

Date effective Total minimum contribution Employer minimum contribution Staff contribute the remainder
Current 8% 3% Up to 5%

Annual Investment Allowance (AIA)

Companies will be able to claim £1 million as AIA for expenditure incurred between 1st January 2019 and 31st December 2020 on fixed assets such as plant and machinery. The allowance is expected to reduce to £200,000 on 1st January 2021.

Business rates

The government is carrying out a fundamental review of Business Rates, with further consultation expected by Autumn 2020.

From 6th April 2020, businesses in the retail, leisure and hospitality sectors operating from premises with a rateable value of less than £51,000 will not pay any business rates in the year. This includes hotels, restaurants and coffee bars.

The discount that pubs receive on their business rates will increase from £1,000 to £5,000, as long as their rateable value is below £100,000 in England.

With the New Tax year almost upon us, why not think about ways you could be more efficient. Our article New Tax Year You has some great ideas.

Business Expenses made simple with our guide.

We held a webinar on Wednesday 18th March where our Senior Technical Accountant, Michael Awuye went through all the things you need to do before the end of the tax year and how to get prepared for the new tax year, as well as an overview of changes announced in the budget.

(Read the End of Tax Year Q&A)

(Download the webinar slides)

Need some help?

All of the above comments are for your information only. We always recommend speaking to an accountant for a more in-depth analysis of your circumstances. If you don’t have an accountant or are looking to switch, give our friendly team a call on 0333 311 8000 or arrange a free consultation.

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