Tax year 2020/21 starts.

With the new 2020/21 tax year fast approaching we aim to give our readers some insights of what to expect from the start of the new tax year.

Payroll

National Living Wage increase: Employers will see above inflation increases to the National Living Wage from April 2020. The new rates for the National Living Wage for ages 25 and above will be £8.72 (a 6.2% increase). The National Minimum Wage will also increase for 21 to 24-year-olds to £8.20 (a 6.5% increase), for 18 to 20-year-olds to £6.45 (a 4.9% increase), for under-18s to £4.55 (4.6% increase) and for apprentices to £4.15 (a 6.4% increase).

New NIC thresholds

It is now clear that employees will benefit from a primary class 1 threshold of £9,500, as promised in the Conservative party manifesto. But employers will start paying NIC sooner at £8,788 (a small increase in last year’s threshold of £8,632).

Income tax thresholds

The tax bands have not been announced. However, as the upper earnings limit for NIC has not increased, I presume this means that the 40% income tax threshold remains at this level too.

The expectation is that the personal allowance will remain at £12,500 as the announcement in Budget 2018 was to cover two years. The Conservatives also committed not to increase the rate of income tax during this parliament.

Employment Allowance

The Employment Allowance of £3,000 will be withdrawn for employers (and connected employers) who have an employer national insurance liability of £100,000 or more for 2019/20.

Statutory payments

We already have the statutory payment values for 2020/21:

SMP, SAP, SPP, ShPP, SPBP* £151.20 p.w. from 5.4.20
SSP £95.85 p.w. from 6.4.20

 

Student loan thresholds

Loan type Threshold for payments Rate of deduction
Plan 1 £19,390 9%
Plan 2 £26,575 9%
Postgraduate £21,000 (no change) 6%

 

Apprenticeship levy

As no announcement has been made in respect of the apprenticeship levy, we assume that the rate will remain at 0.5% and the levy allowance will remain at £15,000 a year.

Pensions

The Lifetime Allowance is expected to rise from £1.055 million, in line with inflation to £1.073 million.

Inheritance tax

The residence nil-rate band is expected to rise from £150,000 to £175,000. This will allow homeowners to pass on £175,000 of property wealth, tax free, on top of the existing £325,000 standard inheritance tax allowance (if leaving a home to a direct descendant). This means that spouses and civil partners, who can share their allowances, will be able to pass on up to £1 million free of tax.

Corporation tax

The corporation tax main rate is expected to remain at 19%. This is due a previously legislated fall to 17% being scrapped during the General Election.

IR35

The off-payroll working rules (IR35) are set to change from 6 April 2020. This will affect private sector contracts and will place the responsibility for determining a worker’s employment status for tax in the hands of the employer or intermediary (agency), instead of the worker.