As we near the end of the tax year, it is important if you are self-employed to start planning for the new tax year. This guide explains when the tax year ends and provides a year-end tax planning checklist.
We have provided a summary for the main 2020/2021 tax year changes to help guide you through the main changes that will come in to force. Taking action at the start of the tax year may give you an advantage. Here’s what you need to know about the 2020/2021 tax year.
When Does the Tax Year End?
The current tax year ends on the 5th of April 2020. The 2020/2021 tax year starts on the 6th April 2020 and ends on the 5th April 2021.
Year-End Tax Planning Checklist
There are lots of different factors to consider when planning ahead for the new tax year. In this year-end tax planning checklist, we’ll cover each of them in turn.
Personal Allowance and Income Tax
The personal allowance for the 2020/21 tax year is not expected to change and will remain at £12500 (your tax-free amount). Each individual regardless of age is entitled to this amount.
The amount of tax you need to pay will depend on the tax band you fall in and how much your income is above your personal allowance. The 20% basic rate threshold for England, Northern Ireland, and Wales will remain the same at £37,500. Any income above this and up to £150,000 will be taxed at 40% and anything above this 45%.
Married couples should take advantage of the Marriage Allowance. This is particularly beneficial where income can be legitimately shifted from a higher or additional rate taxpaying spouse to a non- or basic-rate taxpaying spouse.
For 2019/20, spouses are entitled to transfer up to 10% of their personal allowance (£1,250) to their spouse provided that neither spouse pays tax at above the basic rate following the transfer.
The Lifetime pension allowance is expected to rise to £1.075m for the new tax year. This is the tax-free allowance on all your pension including workplace pensions. State pensions and overseas pensions are excluded from this allowance. You will not have to pay tax on your pension savings until it exceeds the lifetime allowance or you reach 75 years of age.
Off-Payroll in the Private Sector
The legislation known as IR35 is changing as of April 2020. This will now be known as Off-Payroll Tax and will affect medium or large sector business hiring contractors or freelance. If contractors fall inside of the off-payroll tax they will have to have national insurance and PAYE deducted at the source of their income. For a more in-depth explanation and to find out if you fall under the off-payroll tax you can read our previous blog here.
Important dates to remember for the new tax year
- 31 January 2020 – Online tax returns and first payment on account due
- 6th April 2020 – First day of the new 2020-21 tax year
- 31st July 2020 – Second payment on account due
- 5th October 2020 – deadline to register for self-assessment for the first time
- 31 October 2020 – paper tax returns due
30 December 2020 – Opt-in to have overdue tax collected via your tax code throughout the following year (your tax bill must be under £3000 to qualify).