Meg Saksida reviews the most important changes that affect the self-employed in 2020.
Whether it is a result of the Covid-19 pandemic or planned legislative changes, there have been a number of changes to taxing the self-employed (SE) since 6 April 2020.
Government coronavirus pandemic measures
The government has introduced several measures to address the Covid-19 crisis, including a four-week extension from 26 March 2020 for the filing of self-assessment returns for the tax year 2018/19. This allows SE individuals to give HMRC the information required to allow them to enter into the self -employed income support scheme (SEISS).
This scheme gives up to £2,500 a month to make up for lost SE earnings, subject to conditions. If the business has employees, there are also grants for up to 80% of the wages under the job retention scheme.
Deferral of the payment of 2020/21 taxes to 31 January 2021 has also been introduced. This means if you were due to make a payment on account on 31 July 2020 it is no longer required, although guidance states that if it is at all possible, you should.
In addition, for those registered for VAT if a payment was due between 20 March and 30 June 2020, this payment will be deferred until 31 March 2021. Other measures introduced include business rate holidays, and loans where businesses are struggling.
NICs threshold rise
Class 4 National Insurance contributions (NICs) which are paid by the SE will only need to be paid where profits are £9,500; a rise from £8,632 in 2019/20.
The government are planning to increase this threshold over time to £12,500, so it is in line with the personal allowance. Class 2 NICs payments have increased slightly to £3.05 from £3 (for 2020/21).
CGT payment time reduced
Those SE individuals making disposals of chargeable assets post 5 April 2020 will find that the annual capital gains tax (CGT) exemption has risen to £12,300.
However, if the property is residential, it will be necessary to report and to pay the tax on any gain within 30 days of the completion of the transaction. This is a vast change to the normal requirement to declare and pay the tax by 31 January in the year after the tax year in which the disposal occurred.
All other types of asset disposal reporting and payment requirements remain unchanged.
IR35 delayed
The off-payroll working rules (also known as the IR35 rules) were due to be introduced from 6 April 2020, but these have been postponed for a year until 6 April 2021.
If the SE trades through a personal service company, from next year the responsibility for deciding whether you are an employee or genuinely self-employed will fall to the client that you are working for.
Pensions: high income annual allowance charge
Prior to 6 April 2020, ‘high’ earners were subject to the annual allowance charge if they had threshold income over £110,000 and adjusted income over £150,000 and contributed to their pension more than their maximum annual allowance.
Post 5 April 2020, these figures are £200,000 and £240,000 respectively, meaning fewer high earners will be subject to the charge.
Entrepreneurs’ relief lifetime limit reduced
Entrepreneurs’ relief has changed its name to ‘business asset disposal relief’ (BADR), but is still a 10% charge on gains on business property.
The lifetime limit of £10 million has been severely reduced by 90% to £1 million from 6 April 2020. The government have stated that over 80% of those who use the relief will not be affected by the change.
Practical tip
HMRC are allowing a period of adjustment, so they won’t charge penalties for late CGT filing returns on residential property due before 31 July 2020.
