Millions of workers, including the self-employed, will be paying less tax thanks to an increase in the National Insurance threshold for the 2020-21 tax year.
It feels like a long time ago since the Budget – which was just days before the lockdown – but the Chancellor announced a set of measures.
So, here is a round-up of some of the key changes to self-employed tax rules announced. Also included are details of the extra measures put in place to help the self-employed get through the current crisis.
National Insurance changes
The Chancellor, Rishi Sunak, announced in the Budget that National Insurance Contributions (NIC) thresholds would rise for the 2020-21 tax year.
It means that both employed and self-employed workers who pay Class 4 contributions will be able to earn up to £9,500 in 2020-21 before they have to pay. Previously, it was £8,632.
Around 31 million Britons will effectively receive an average pay rise of £104, or £78 if you are self-employed.
For example, a self-employed worker with profits of £20,000 would have paid £1,176.52 in 2019-20 through a mix of Class 2 and Class 4 contributions. But in 2020-21 they will pay almost £73 less at £1,103.60.
You can work out your estimated payment using the government’s calculator.
Capital Gains Tax changes
From today (6th April) the Capital Gains Tax (CGT) allowance increases from £12,000 to £12,300 for individuals and representatives.
It also rises from £6,000 to £6,150 for trustees of settlements. The CGT allowance is the amount you can make from the increased value of your possessions tax-free, such as shares or antiques.
Anyone who makes a taxable capital gain from UK residential property will have to pay the tax they owe within 30 days of the completion of the sale or disposal.
Currently, you add this to your self-assessment tax bill due by 31st January following the end of the tax year in which the sale or disposal was made.
Entrepreneurs Relief reduction
When selling a business, you are able to claim Entrepreneurs’ Relief, which allows you to pay less CGT.
This tax relief was slashed by 90% from 6th April, so that means if you will be taxed at the normal CGT rates for anything above £1 million. Previously, you were not taxed at normal rates unless your business sale was in excess of £10 million.
Tax bill deferments
Self-employed people need to fill in a self-assessment tax return each year and pay your entire tax bill by 31st January. You can also use ‘payment on account’ to split your payment by paying on 31st July the previous year.
Under measures announced by the Chancellor in light of the coronavirus pandemic, those who use payment on account can defer what is owned in July 2020 to January 2021.
As what you pay is an estimate, do be aware you may need to pay an additional balancing payment by 31st January 2021 if you made more profit than expected.
VAT payments due before 30th June 2020 do not need to be made until 31st March 2021. This applies to UK VAT-registered businesses that have a payment due between 20th March 2020 and 30th June 2020.
The government has also postponed controversial tax reforms for contractors, which is known as IR35.
To help ease the strain on businesses and individuals that the pandemic is creating, these reforms have been put on hold.
When the changes come into force it will mean every medium and large private sector business in the UK will have to set the tax status of its contract workers. This could mean thousands could have to pay more tax.
If you would like more information, please do not hesitate to contact us. We are chartered accountants based in Stockon on Tees, but we’re happy to help any business in the North East if they are uncertain about the current situation.