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April 2020 Tax Changes – Treetops Chartered Accountants
As the budget was quite late this year the main thrust was on economic policy and there was not a lot of changes announced which will impact on you directly. However, there are many measures that were announced in previous budgets which now start in April 2020.
IR35 – Off Payroll Working
The IR35 rules continue as normal. The fundamental change here is where the potential liability for payroll taxes fall should HMRC dispute your status. From April it could be on your client and as a result many larger companies are blanket banning contractors. If this change impacts on you and you are having to move to PAYE or an umbrella company, there will be fundamental changes to your existing company.
The first change will be that you should stop your payroll from 31 March 2020. If we run your payroll for you, you MUST let us know that this has impacted on you, so we can cease it.
For an overview of how IR35 works and whether this relates to you see our IR35 service page.
Other tax planning opportunities are available on the closure of the company, especially as the rumoured abolition of the 10% Capital gains tax entrepreneurs’ relief band was not implemented but just the upper level reduced to lifetime gains under £1m.
Please contact us if you would like to explore these.
The planned reduction in Company tax to 17% was cancelled and it will remain at 19%.
Setting the best level for your salary for 20/21:
A If you run your own payroll
You will need to set your salary at £9,500 gross per annum or £12,500 gross per annum depending on your individual circumstances and pay the net salary and taxes as they are calculated. See below for additional guidance.
B If we process your payroll
We will soon email you the March quarter’s payroll. Please note there may be some National Insurance payable to HMRC this quarter. Details of how and what to pay will be with the payroll reports, please check these reports when you receive them.
To minimise the taxes due, you should set your 2020/21 take home salary at:
- If you currently have a standing order paying £719 salary from the company to you each month, then you should increase this to £792. Note because the chancellor has split the National Insurance bands there will be a small amount of National Insurance due in March 2021 and we will let you know this amount in due course.
- If you have a £1,003 net salary this should be increased to £1,011.
We will process your 20/21 payroll at the new levels indicated above. When you receive the first quarterly payslips please check that these agree to the payments you are making and if not, let us know of any discrepancies so they can be adjusted.
- If your salary is now £792 per month you can then take £5,000 of dividends per annum tax free. There is then tax payable at 7.5% on the next £35,500 of dividends. The dividend tax rate then increases to 32.5%.
- If your salary is £1,011 per month you can then take £2,000 dividends per annum tax free. There is then tax payable at 7.5% on the next £35,500 of dividends. The dividend tax rate then increases to 32.5%.
If you have other income this will reduce the bandings accordingly.
The 32.5% band continues until your total income reaches £100k then the % rises again.
Top Tax Director/ Shareholder Tips to Consider:
- If you have not already, you may want to transfer some shares to your spouse to reduce dividend tax.
- If you are the sole director/employee and take on another employee for any period in the year, you should increase your salary to £12,500 per annum as this will reduce taxes as you can claim the Employer’s NI allowance.
The Marriage Allowance
The Marriage Allowance lets you transfer £1,250 of your Personal Allowance to your husband, wife or civil partner. If they earn more than you, this reduces their tax by up to £250 in the tax year. To benefit as a couple, the lower earner must have an income of £12,500 or less. Also, neither of you can be a higher rate tax payer.
2019/20 Pension Payments
If you are considering making a further personal pension payment, you may wish to do this before 5th April 2020 as it will extend your basic rate tax band and allow further dividends to be taken at the lower rates. The amount that you can personally contribute is limited to the higher of £3,600 or your earnings for the year (not including dividends).
Your company can also contribute, which may allow you to make higher additional payments up to £40,000 per annum plus unused relief brought forward. If you are considering this you should contact your pension advisor and let us know the contribution in due course. Remember that the tax relief on pension contributions is given in the year that the contributions are actually paid.
The government continues to penalise landlords, in their attempt to drive them from the housing market.
There have also been changes to the amount of interest you can claim as a tax deduction, if you are a high rate tax payer. This is being phased in over 4 years starting April 2017. The first impact of this you will already have seen in your 2017/18 tax return. The rules are complicated but if you are a high rate tax payer, ultimately the interest will only be allowed as a tax deduction at 20% and not the high rate of tax. You can therefore expect your taxes to rise again this year.
When you sell your rental property, Capital Gains Tax will be due and this is currently reported in your annual tax return if you are a UK resident. If you are not resident in the UK, then you have 30 days to report the sale or you will be fined. This rule is being extended to UK residents and from 6 April 2020 everyone will also have to report the sale and pay the estimated tax within 30 days and therefore this is a major change and it will catch some out.
This is an important point as there are fines if you are late and pass the 30 day deadline.
Please see our accounting for landlords page or contact us for more advice.
If you own a property inside a limited company, don’t forget you may be subject to the Annual Tax on Enveloped Dwellings (ATED) an annual tax charge, payable mainly by companies that own UK residential property valued at £500,000 or above.
If a property falls within ATED, an annual return must be submitted to HMRC along with the tax payment. The return for the period from 1 April 2020 to 31 March 2021 is due by 30 April 2020.
Properties need to be revalued every five years and, as such, a property revaluation should have taken place on 1 April 2017. This valuation (depending on the date of acquisition) will then be used for the return period.
Construction Industry Subcontracts and VAT:
Construction Services Domestic Reverse Charge (“CSDRC”)
This was scheduled to begin in October 2019. This was delayed a year and will take effect from 1 October 2020. The rules are: a person supplying certain construction industry services to a VAT-registered customer will no longer be required to charge VAT. Instead the customer will account for VAT under a “reverse charge” arrangement. That is, the customer will account for VAT as if he had himself made the supply (to himself) and will also, if and to the extent appropriate, recover the same VAT as input tax. HMRC have introduced this to minimise VAT fraud, to remove any risk to them that there may be deducted as input tax an amount which has never been paid over as output tax.
The CSDRC applies only to supplies which would otherwise be subject to VAT at the standard or reduced rate. It does not, for example, apply to zero-rated supplies or supplies made by someone who is neither registered nor required to be registered for VAT (for example, where the supplier is below the VAT registration limit).
The list of services to which the CSDRC applies (“construction services”) has a familiar ring—they are the same services as those to which the Income Tax Construction Industry Scheme (“CIS”) applies. They thus extend not only to construction but to alteration or repair of buildings, some types of electrical and plumbing work, site clearance etc. The CSDRC also extends to any goods or materials supplied in conjunction with “construction services”.
The CSDRC applies only to services that are made to a contractor: it does not apply to an “end-user” customer. However, there may be situations when this rule may be relaxed where both parties agree. Further guidance is due to be published by HMRC in the coming months which will shed light on this.
Tax Bands ( *Scotland varies )
Your tax free personal allowance remains the same at £12,500
The point where high rate tax comes in remains the same at £50,000
Your national insurance now starts at £9,500
Allowances You Can Claim
Here are a few of the allowances you can claim to help reduce your tax:
The first £2,000 of dividends are tax free
The first £1,000 of interest is tax free (if you are a low rate tax payer)
The first £12,300 of capital gains you make are tax free
You may be able to claim a trading allowance of £1,000 if you are self employed
You may be able to claim a rental allowance of £1,000 if you rent property
Your income tax allowance is £12,500
You can claim rent a room allowance of £7,500
Marriage allowance, as above £1,250.
If you plan your income and take advantage of all of these that is £38,550 tax free!
Coronavirus Sick Pay
Under Mr Sunak’s new measures, statutory sick pay (SSP) will be extended to all of those who are eligible and asked to self-isolate, even if they are not showing symptoms. The payment, which works out at £94.25 per week, will be available from day one of quarantine.
If you are self-employed you are not usually eligible for SSP, but the Government has vowed to make it quicker and easier to get benefits.
If you own a small business you may be wondering who covers the cost of SSP. Fortunately, the Government has agreed to meet the cost for up to 14 days SSP for businesses with fewer than 250 employees.
Though given the pace at which information is changing we recommend you stay up to date with the government’s latest statements.
Retail, leisure and hospitality companies with a rateable value of less than £51,000 will not pay any business rates this year. These sectors are expected to be among the worst affected as people cut back on travel and stay home during the coronavirus outbreak.
Who Needs to Complete a Tax Return
The simple answer is anyone who has to pay taxes to HMRC, other than deducted from your salary. But if your total income is over £50,000 and you claim child benefit then you must complete a return. If your income falls over £100,000 then, its compulsory all round.
Happy New Tax Year from all at Treetops – Tom McManners – Chartered Accountant