It’s hard to believe we’re a month into the 2020/21 tax year, given the volume of calls we’re fielding about the furlough scheme.
Coronavirus continues to wreak havoc in the UK, both medically and with the economy. The effects of the latter could be felt for the next decade.
Given the unprecedented levels of government spending related to COVID-19, we expect big tax changes to be announced in the autumn.
But as the new tax year got under way on 6 April 2020, a small amount of tax changes have taken effect and have the potential to catch you out.
In addition, some previously announced measures due to start last month were kicked into the long grass and will start next April.
2020/21 tax changes
Capital gains tax on residential property sales
Arguably the biggest change this year surrounds the reporting and paying of capital gains tax on residential property sales in the UK.
This affects people with second homes, of which there are plenty in Devon, and residential landlords with multiple properties.
Tax on any gains arising from the sale of these properties needs to be reported and paid within 30 days of the sale going through.
Prior to last month, you had between 10 and 22 months after the date of sale to pay any capital gains tax.
Other changes with less potential to catch you out apply to letting relief and private residence relief, which we touched on in February’s blog.
Another change to capital gains tax arrives in the form of the lifetime limit for entrepreneurs’ relief falling from £10 million to £1m.
This tax break allows business owners to pay a lower tax rate of 10% on any profits they make from the sale of their business.
Only the first £1m raised from the sale of a business is eligible for the lower 10% rate, with a rate of 20% usually applying above this.
As this change applies to the lifetime limit, it takes into account any businesses you’ve previously sold.
The higher capital gains tax rate will apply if you’ve already raised more than £1m from selling a previous business.
High earners can put more money into their pension pots in 2020/21 after the decision to raise the tapered annual allowance thresholds.
Threshold income applies from £200,000 (up from £110,000), while adjusted income kicks in at £240,000 (up from £150,000).
What that means is the tapered annual allowance now erodes annual income by £1 in every £2 above £240,000 in 2020/21.
The annual pension contributions allowance remains at £40,000, while the lifetime pension value limit rose to £1,073,100.
2021/22 tax changes
Off-payroll in the private sector
In March 2020, we wrote about the imminent changes to off-payroll working rules extending to the private sector the following month.
That information was correct when going to print at the time, only for the Treasury to delay the extension due to COVID-19.
With both businesses and HMRC facing unprecedented challenges presented by the coronavirus, the measure was delayed by 12 months.
The rules will now apply from 6 April 2021.
Making Tax Digital for VAT: phase two
Making Tax Digital (MTD) got under way last spring, but what a lot of people did not know is that was only the beginning.
This ‘soft-landing period’ allowed people to use basic bridging software to link business records to HMRC’s servers, while no penalties were in place.
Phase two will demand more complex technology solutions to ensure a VAT-registered business complies with MTD.
It will also introduce stringent rules around the way businesses digitally link their software and how they must upload their VAT returns.
This was due to start last month but will now commence from 1 April 2021.