With long awaited Budget 2020 and the new tax year 2020/21 in this blog post we will take a quick dive and review upcoming changes to personal, corporation and national insurance tax.
As the table below shows the percentages have not change since last tax year. The Personal Allowance has not been increased this year, which means that still the first £12,500 of income is tax free.
|Income||Income tax %||Dividends tax %|
|£12,500||Personal allowance||Personal allowance|
|£12,500 - £50,000||20%||7.5%|
|Up to £150,000||40%||32.5%|
Please note that the changes in Scottish tax has not been taken into account in this post.
If you have additional income as your salary, the amount above £12,500 would be taxed at basic rate at 20% up to £50,000, then higher tax rate at 40% up to £150,000 of earnings, and the additional rate of tax at 45% on the earning above £150,000.
The income limit for personal allowance stays without a change. As before the personal allowance will start reducing, on earnings above £100,000, £1 for each £2 of earnings and at £125,000 and above is reduced to £0.
Dividend allowance stays at £2,000, which means that the first £2,000 dividends are tax free.
National Insurance bands
The rates will stay the same as in previous tax year, just the changes in thresholds and this year the threshold has been increased by £868, which means that for the first £9,500 there is no National Insurance contributions to pay.
|Earnings||Employee NI %||Employer NI %|
The Employment Allowance will be increased to £4,000 with the additional restriction than last year, which means that it is not available for the businesses where only single person on the payroll is also a director, i.e. ‘single director employee’ limited companies and it will only apply to employers if their total secondary Class 1 liability in the previous tax year was under £100,000.
National Insurance for Self-employed
Class 2 NI won’t be scrapped as previously announced, and the rate will be rising by 5p per week, with slightly increased lower profits limit.
Class 4 NI rates remain at 9% and 2% and is still payable in addition to class 2.
|Earnings||NI Class 2||NI Class 4|
|Less than £6,475||-||0%|
|£6,475 - £9,500||£3.05 per week||0%|
|£9,500 - £50,000||£3.05 per week||9%|
|Above||£3.05 per week||2%|
Capital gains tax
The capital gains tax exemption threshold has been increased to £12,300 with no changes to the percentages payable.
Annual allowance for pension contribution stays at £40,000 per annum and lifetime allowance increase to £1,055,000.
The 2020/21 brings no change to corporation tax level which remains at 19%. The plans to lower the corporation tax to 17% were not implemented.
|Financial Year||Corporation tax %|
The registration threshold stays at the same level of £85,000 and deregistration is £83,000.
The IR35 changes to private sector will be postponed to April 2021.
The ISA annual limit stays at the same level of £20,000. However, there is significant increase in Junior ISA from £4,368 to £9,000 annually.
Research and Development
The expenditure credit has been increased this year from 12% to 13%.
|Research and development tax credit rates||2019/20||2020/21|
|Research and development SME payable credit||14.5%||14.5%|
|Research and development expenditure credit (RDEC) scheme||12%||13%|
|Film/High-end TV/Video Games tax credit||25%||25%|
|Open-ended investment companies and authorised unit trusts||20%||20%|
Annual tax on enveloped dwellings (ATED)
Please find slightly increased rates for ATED below:
|More than £0.5m but not more than £1m||£3,650||£3,700|
|More than £1m but not more than £2m||£7,400||£7,500|
|More than £2m but not more than £5m||£24,800||£25,200|
|More than £5m but not more than £10m||£57,900||£58,850|
|More than £10m but not more than £20m||£116,100||£118,050|
|More than £20m||£232,350||£236,250|
The rates should be used as guidance only as it may change in individual circumstances.