UK Tax Update 2020

Taxation in the United Kingdom may involve payments to at least three different levels of government: central government (Her Majesty’s Revenue and Customs), devolved governments and local government. Central government revenues come primarily from income tax, National Insurance contributions, value added tax, corporation tax and fuel duty. Local government revenues come primarily from grants from central government funds, business rates in England, Council Tax and increasingly from fees and charges such as those for on-street parking. In the fiscal year 2014–15, total government revenue was forecast to be ￡648 billion, or 37.7 per cent of GDP, with net taxes and National Insurance contributions standing at ￡606 billion.

Let’s Discuss about UK Tax Update 2020 and main important regulation for the financial year 2020-2021.

Assess able Persons & Residential Status

• All Individuals including Children, are chargeable to Income tax
•  Both spouse with married status will be considered as a separate Individuals for the Purposes of Income tax.
• All Persons resident for the tax purposes in the UK are assessed to UK tax on their Worldwide Income.
• For Jointly owned property income and all other amount will be divided in the ratio of 50:50 regardless of actual original percentage of ownership however there is a option
• To write HMRC and get finalized the ratio in which tax payer want to be taxed.

Financial year follows from April 06th of 2020 to April 05th of 2020.

Personal Allowances

The personal allowance is currently ￡12,500. Budget 2018 announced that the allowance will remain at the same level in 2020/21 and then increase by CPI. There is a reduction in the personal allowance for those with ‘adjusted net income’ over ￡100,000. The reduction is ￡1 for every ￡2 of income above ￡100,000. So for the current and next tax year there is no personal allowance where adjusted net income exceeds ￡125,000 technically.

The tax on income (other than savings and dividend income) is different, for taxpayers who are resident in Scotland, from taxpayers resident elsewhere in the UK. The Scottish income tax rates and bands apply to income such as employment income, self-employed trade profits and property income. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK.

The Scottish Government has confirmed that the Scottish income tax rates will be frozen for 2020/21. The thresholds from which the 20% and 21% bands apply will be increased to ￡14,585 and ￡25,158 respectively for those who are entitled to the full personal allowance

From April 2019, the Welsh Government has the right to vary the rates of income tax payable by Welsh taxpayers. The UK government has reduced each of the three rates of income tax paid by Welsh taxpayers by 10 pence. TheWelsh Government set the Welsh rate of income tax at 10 pence which has been added to the reduced rates. This means the tax payable by Welsh taxpayers continues to be the same as that payable by English and Northern Irish taxpayers. The Welsh Government has confirmed that the income tax rate will remain at 10 pence for 2020/21.

Tax Band / Slab :

For Scotland tax band is as mentioned below.

DIVIDEND TAX ABILITY AND PERSONAL ALLOWANCES

You may get a dividend payment if you own shares in a company. You can earn some dividend income each year without paying tax. You do not pay tax on any dividend income that falls within your Personal Allowance (the amount of income you can earn each year without paying tax). You also get a dividend allowance each year. You only pay tax on any dividend income above the dividend allowance.

Few Important Changes in FY 2020-2021:

• The current National Insurance threshold is ￡8,632 a year. From 6 April 2020, this will go up to ￡9,500 a year. The government estimates that around 31 million people will benefit from this increase. If you’re a full-time employee, you can expect to pay about ￡104 a year less than you did in 2019/20. And if you’re self-employed, you can expect to pay ￡78 a year less.
• If you employ staff, your Employer’s National Insurancethreshold will also increase, albeit to ￡8,788 rather than ￡9,500. Luckily, if you’re a small business and your payroll(National Insurance contributions (NICs) liability is below ￡100,000 in the year before the year of Claim. You can claim up to ￡4,000 back under the employment allowance.

Connected companies – Have to add together total employer contributions and if having more than one pay roll then also need to add all obligations and deemed payment such as to off – payroll workers, don’t count towards the above limit calculation. You can’t claim EA for those deemed worker payments.

Additional measures: corona virus relief

Alongside the rise in National Insurance thresholds, the government also announced a number of policies to help you if you’ve been affected by the corona virus pandemic.

In particular:

1. You can claim statutory sick payif you have to self-isolate, whether you’ve shown symptoms or not. If you’re a business with fewer than 250 employees, the government will pay it for you
2. Business rates(Kind of Municipal taxes) for restaurants, hotels, and entertainment venues have been suspended for a year if your property has a ratable value of between ￡15,000 and ￡51,000
3. You can borrow up to ￡5 million from the British Business Bank through the temporary coronavirus business interruption loan scheme
4. If you’re an employee and you’ve been furloughed (that is, suspended from work without pay), the government will pay 80 percent of your salary, up to a limit of ￡2,500 a month.
5. If you’re self-employed and your income has gone down, you can claim 80 percent of your profits, up to a maximum of￡2,500 a month. Your self-employed trading profits must be less than ￡50,000, and more than 50 percent of your income must come from self-employment.

Sadly, self-employed support doesn’t extend to self-employed people who do business as limited liability companies. If you’re one of these 3.5 million businesses, you’ll only be able to claim 80 percent of your salary, and that’s if you furlough yourself. Which means you’ll have to close for business.

6.The government planned to lower corporation tax to 17 percent, but this was scrapped. Corporation tax will remain unchanged at 19 percent

7. The Annual Investment Allowance, which the government temporarily raised to ￡1 million a year, will go back down to ￡200,000 in December 2020. If you were planning on making a big plant and machinery investment for your business, now’s the time to do it. You won’t be able to deduct anything over ￡200,000 from your taxes after December 2020

8. Entrepreneurs’ relief will go down from ￡10 million to ￡1 million. This means that, if you sell your business, you’ll now pay 10 percent capital gains tax on the first ￡1 million and 20 percent capital gains tax on the rest. Luckily, the government reckons this change won’t affect most businesses

Few Special points for Salaried Profile

If your only income is from Wages/Salary or Pension then you don’t require to file Tax return in UK unless you have any other untaxed Income from letting out of property, commission or tips, income from savings, investments and Dividends, foreign Income.

WHEREAS, In some cases even department may ask you to file self assessment return by sending a Notice/letter. Afterward every year you have to file once it have been asked you to file self assessment. However it is also advisable to file tax return if you are eligible for tax refund or owe to government.

Due date of filing : Manual before October 31st of the subsequent year

And for Online filing ; its January 31st of 2020

If you are going to appear first time for self assessment then you have to get register yourself On www.gov.uk and get code on your address to get credentials.

TRADING ALLOWANCES

The trading allowance is an allowance of ￡1,000 that’s available to some sole traders. As of 6th April 2017, if you’re a sole trader with income from your business of under ￡1,000 a year, then you don’t have to register for Self Assessment with HMRC, or pay tax on your business income.If your income is over ￡1,000 a year, you still have to register with HMRC, but you can use either the trading allowance of ￡1,000, or your actual business expenses and capital allowances, against your income to work out your profit. You can’t use both the trading allowance and your actual costs against your income – you have to use one or the other. The trading allowance isn’t available to partnerships, partners, or limited companies.

RENT A ROOM RELIEF

The Rent a Room Scheme lets you earn up to a threshold of ￡7,500 per year tax-free from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else. You can let out as much of your home as you want.

Eligibility:

You can opt in to the scheme at any time if: you’re a resident landlord, whether or not you own your home you run a bed and breakfast or a guest house You cannot use the scheme for homes converted into separate flats.

Even Non resident land lord can claim it and if you don’t opt for this scheme then tenant Or managing agent/broker will deduct taxes at 20% from your gross rent payable. So Be planned and save your taxes to be lend to the government in the form of withholding Taxes.

Either you can opt for the FLAT DEDUCTION OR CLAIM NORMAL ELIGIBLE EXPENDITURES.

MARRIAGE ALLOWANCES

Marriage Allowance lets you transfer ￡1,250 of your Personal Allowance to your husband, wife or civil partner. This reduces their tax by up to ￡250 in the tax year (6 April to 5 April the next year). To benefit as a couple, you (as the lower earner) must normally have an income below your Personal Allowance – this is usually ￡12,500.You can calculate how much tax you could save as a couple. You should call the Income Tax helpline instead if you receive other income such as dividends, savings or benefits from your job. You can also call if you don’t know what your taxable income is.When you transfer some of your Personal Allowance to your husband, wife or civil partner you might have to pay more tax yourself, but you could still pay less as a couple.

To benefit as a couple, you (as the lower earner) must normally have an income below your Personal Allowance –this is usually ￡12,500.You can calculate how much tax you could save as a couple.

You should call the Income Tax helpline instead if you receive other income such as dividends, savings or benefits from your job. You can also call if you don’t know what your taxable income is.When you transfer some of your

Personal Allowance to your husband, wife or civil partner you might have to pay more tax yourself, but you could still pay less as a couple. If you’re in Scotland, your partner must pay the starter, basic or intermediate rate, which usually means their income is between ￡12,501 and ￡43,430.

Donations through Gift Aid Scheme

Donating through Gift Aid means charities and community amateur sports clubs (CASCs) can claim an extra 25p for every ￡1 you give. It will not cost you any extra. Charities can claim Gift Aid on most donations, but some payments do not qualify.

You need to make a Gift Aid declaration for the charity to claim. You usually do this by filling in a form – contact the charity if you have not got one.

Your donations will qualify as long as they’re not more than 4 times what you have paid in tax in that tax year (6 April to 5 April). The tax could have been paid on income or capital gains. You must tell the charities you support if you stop paying enough tax.

For Gift Aid, you can also claim tax relief on donations you make in the current tax year (up to the date you send your return) if you either: i. want tax relief sooner ii. will not pay higher rate tax in current year, but you did in the previous year.

If you do not have to send a tax return, contact HMRC and ask for a P810 form. You’ll need to submit it by 31 January after the end of the previous tax year.

High Income Child Benefit charge

You may have to pay a tax charge, known as the ‘High Income Child Benefit Charge’, if you have an individual income over ￡50,000 and either: you or your partner get Child Benefit someone else gets Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep

It does not matter if the child living with you is not your own child. Claiming Child Benefit also means your child will get their National Insurance number automatically shortly before they’re 16. They will not have to apply for one themselves.

To work out if your income is over the threshold, you’ll need to work out your ‘adjusted net income’. Your adjusted net income is your total taxable income before any personal allowances and less things like Gift Aid.

PERSONAL SAVING ALLOWANCES

Savings in tax-free accounts like Individual Savings Accounts (ISAs) and some National Savings and Investments accounts do not count towards your allowance. If you have a joint account, interest will be split equally between the account holders. Contact the savings helpline if you think it should be split differently. If you already paid tax on your savings income. You can reclaim tax paid on your savings interest if it was below your allowance. You must reclaim your tax within 4 years of the end of the relevant tax year.

Fill in form R40 and send it to HMRC. It normally takes 6 weeks to get the tax back.

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