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As normal, each April we expect to see some changes to business rules as previously announced in the annual budget, so we’ve picked six changes you need to be aware of in 2020/2021
New national living wage now in force
As of 1 April 2020, a new National Living Wage will see low-paid workers earn nearly a thousand pounds more a year.
This new rate of pay sees a rise from £8.21 to £8.72 per hour for workers over the age of 25, marking an increase of 6.2%.
This means a full-time worker who is aged 25 or over who receives the National Living Wage will get an annual pay rise of £930.
Younger workers also receive a boost to the national minimum wage of between 4.6% and 6.5% depending on their age, with those aged 21-14 years seeing a 6.5% increase from £7.70 to £8.20 an hour.
The changes are:
- 21-24 year olds: 6.5% increase from £7.70 to £8.20
- 18-20 year olds: 4.9% increase from £6.15 to £6.45
- Under 18s: 4.6% increase from £4.35 to £4.55
- Apprentices: 6.4% increase from £3.90 to £4.15
National Insurance payments reduced.
From 1 April, the threshold on which people in the UK start paying national insurance rose from £8.632 to £9.500. Any earning above this are subject to 12% national insurance contributions for both the self-employed and employees. It is stated by the Institute for Fiscal Studies that half of UK households will benefit by an average of £120 a year.
Capital gains tax allowance rises
Capital gains tax is charged on profit made when selling an investment, such as a buy-to-let property, antiques or shares in a company. Everyone in the UK is allowed to make a certain amount of gains, before this tax kicks in.
As of April 6 the annual capital gains allowance rises from £12,000 to £12,300.
Tax changes for landlords
From 6 April, landlords won’t be able to claim any tax relief on mortgage interest, and tax bills could rise significantly.
Landlords will now receive a 20% tax credit towards all financing costs. The change will hit landlords with higher incomes, as they will no longer be able to claim up to 45% tax relief.
The Government has also reducing lettings relief for accidental landlords – for example, people who rent out their main home while moving away for work. Currently, if a landlord sells a property which they once lived in but later rented out, they can deduct up to £40,000 from any profit made on selling the property.
But in the 2020/21 tax year, this relief will be removed unless the landlord shared the property with their tenant.
Changes to the pensions annual allowance
UK residents are allowed to save a maximum of £40,000 a year into a pension. But higher earners are subject to a lower allowance. Previously, any earnings above £110,000 would see the annual allowance start to taper off, until someone earning over £210,000 could only pay £10,000 into a pension.
From 6 April, a change to the threshold is being made. The threshold at which the annual allowance begins to taper off will rise to £240,000. The change has been made partly to ensure that doctors are not financially penalised for picking up extra shifts.
Meanwhile the lifetime pension allowance is rising in line with inflation to £1,073,100. The lifetime allowance is the maximum amount you can take out of a pension without triggering an extra tax charge of up to 55%.
Changes to the Entrepreneurs Relief
If you’re selling a business, there are extra reliefs available which might mean you can pay less CGT when you sell or give away your company. This is called Entrepreneurs’ Relief.
In 2020-21, this tax relief is due to be slashed by 90%. Under the recent revamp, you’ll be charged 10% on the first £1m of gains when selling a qualifying business, rather than the first £10m. This means that anything above £1m will be taxed at normal CGT rates of 10% or 20% for higher-rate taxpayers.
The allowance applies at an individual level, so £1m is the maximum you can claim per person, rather than for each business you sell. You’ll need to calculate and pay your CGT bill in the same way as when selling any other asset.
As always, if you have any question or concerns about running your business do email us on firstname.lastname@example.org. We are happy to help.