The new tax year started on 6 April 2020 and, with it, came many changes. Contractors and freelancers should stay on top of the latest industry news, so Gorilla Accounting are taking a look at what the new tax year brings and what it means for the self-employed. You can also find key dates you should be aware of as well.
So, what is changing and what remains the same?
Personal Allowance
As contractor accountants, we are always up-to-date with the latest legislation, including being aware of the amount you earn before you have to pay income tax. For the tax year of 2020/21, the personal allowance will remain at £12,500 throughout the UK, as announced by Chancellor Rishi Sunak. Knowing this personal allowance can help you to figure out how it affects your personal finances.
When it comes to income tax thresholds, the amount of tax you have to pay every year depends on your tax band and how much income is above the personal allowance. The basic rate threshold will stay at £37,500.
VAT Reverse Charge
From 1st October 2020, the VAT reverse charge will come into force in the construction industry in order to combat fraud. It will apply to transactions between businesses that are VAT-registered, which will mean that the customer receiving the service will have to pay the VAT due to HMRC, instead of paying the supplier. This legislation is meant to tackle missing trader fraud specifically, so VAT cash will no longer flow between businesses.
The VAT reverse charge will affect companies registered with the Construction Industry Scheme. Companies that invoice clients that are not registered with this scheme will have to charge VAT as normal. If you’re a contractor who offers your services to other businesses, works through a recruitment agency or operates through an umbrella company, you’ll be impacted by this legislation.
By providing accounting for contractors, we can help you to navigate the complex legislation the government implements. This peace of mind is invaluable, especially if you’re trying to run your business and can’t afford to spend time or effort learning the ins and outs of new tax rules.
Capital Gains Tax
Another thing that’s different now that the new tax year has started is capital gains tax. After a UK resident sells a UK property, they will have to complete an online return within 30 days of selling the property, almost like the self-assessment rule. You will also have to know how much capital gains tax that you believe is due and pay it within the 30 days.
If you’re a landlord who owns a second home you’re renting, for example, you’ll have to pay capital gains tax earlier than expected, which can put your cash flow at risk. As accountants for landlords, we can help you to figure all this out, so you don’t have to stress about this issue.
Pension Allowances
There are also some changes to pension allowances. Your annual allowance, which is what you can save in your pension pots in a tax year before paying tax on it, is set at £40,000. If you earn over £110,000, this annual allowance could be reduced. The state pension age will be 66 from October 2020.
National Insurance Thresholds
Chancellor Rishi Sunak also said that National Insurance thresholds for the tax year of 2020/21 will increase. Whether you’re employed or self-employed, you have the chance to earn £9,500 before having to pay the relevant national insurance contributions. The Chancellor believes this measure can help around 31 million workers.
Key Dates for the 2020/21 Tax Year
There are no real changes to key dates in the 2020/21 tax year, so you can expect to submit your returns and pay your taxes at about the same date as the previous tax year. Here are some popular dates you should keep in mind, although they are by no means comprehensive (for more dates, check out our accounting calendar):
31 May 2020 – As a self-employed individual with employees, you’ll have to issue their 2019/20 P60 certificate by this date.
5 July 2020 – Due date for PAYE Settlement Agreement
5 October 2020 – This is the deadline to register with HMRC if you became self-employed or started receiving income from properties.
31 January 2021 – Deadline to file self-assessment tax returns for the tax year of 2019/20.
At Gorilla Accounting, we strive to help you stay on top of all key changes that came into effect once the new tax year started. We understand that you’re busy running your business and may not have time to spend on the financial side of things so, if that’s the case, don’t hesitate to talk to us and we’ll be happy to discuss your needs with you.
In the meantime, check out our contractor tax calculator, which will help you to figure out your take-home pay.
