Skip to main content What's changing for small businesses in the 2020/2021 tax year?
Emily Coltman FCA
Chief Accountant
A new tax year is starting on April 6th, which will mean many of the changes announced in recent Budgets will come into effect. Before the 2020/2021 tax year kicks off, here’s a roundup of some of the key changes for small businesses.
If you’re looking for more info on the new measures the government has set out for the self-employed in response to the recent coronavirus outbreak, check out our small business coronavirus support hub.
Changes to some tax and National Insurance rates and bands
Some of the rates and bands have been frozen, while others have increased. Here are the rates and bands that will come into effect on 6th April:
England, Northern Ireland and Wales
| 2020/21 | 2019/20 | |
|---|---|---|
| Personal allowance | £12,500 | £12,500 |
| Employee’s NI becomes due at | £9,500 | £8,632 |
| Employer’s NI becomes due at | £8,788 | £8,632 |
| Higher rate tax becomes due at | £50,000 | £50,000 |
| Class 2 NI becomes due when profits exceed | £6,475 | £6,365 |
| Class 2 NI per week | £3.05 | £3.00 |
| Class 4 NI becomes due when profits exceed | £9,500 | £8,632 |
Scottish Tax Rates and Bands
The Scottish rates of income tax will change to the below on 11th May 2020.
| 2020/21 | 2019/20 | |
|---|---|---|
| Personal allowance | £0 - £12,500 | £0 - £12,500 |
| Starter rate 19% | £12,501 - £14,585 | £12,501 - £14,549 |
| Basic rate 20% | £14,586 - £25,158 | £14,550 - £24,944 |
| Intermediate rate 21% | £25,159 - £43,430 | £24,945 - £43,430 |
| Higher rate 41% | £43,431 - £150,000 | £43,431 - £150,000 |
| Top rate 46% | Over £150,000 | Over £150,000 |
Employment Allowance Increased
The Employment Allowance will increase from £3,000 to £4,000 on 6th April but from this date, only businesses with an employer’s NI liability of under £100,000 a year will be eligible to claim the allowance.
National Minimum Wage / National Living Wage rates per hour increased
The following rates will all increase on 6th April:
| 2020/21 | 2019/20 | |
|---|---|---|
| Employees aged 25 and over: NLW | £8.72 | £8.21 |
| Employees aged under 18: NMW | £4.55 | £4.35 |
| Employees aged 18-20: NMW | £6.45 | £6.15 |
| Employees aged 21-24: NMW | £8.20 | £7.70 |
Student Loan Income thresholds
The levels of income above which student loan repayments are due will change on 6th April as follows:
| 2020/21 | 2019/20 | |
|---|---|---|
| Undergraduate loan: plan 1 | £19,390 | £18,935 |
| Undergraduate loan: plan 2 | £26,575 | £25,725 |
| Postgraduate loan | £21,000 | £21,000 |
Working from home rate for employees increased
If you operate your business through your own limited company and claim costs for working from home, HMRC will ask you for proof of any working from home costs of over £6 (rather than £4) from 6th April 2020.
Delays and cancellations to planned changes
Corporation Tax rate holds steady
The rate at which limited companies pay Corporation Tax was originally planned to decrease from 19% to 17% on 1st April but these plans have now been cancelled. The rate of Corporation Tax will now remain at 19%.
IR35 changes delayed
Changes to the operation of IR35 legislation in the private sector that were due to take effect on 6th April 2020 have now been delayed until April 2021.
Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.
