Monday 6 April 2020 will see a range of tax changes come into effect with the start of the 2020/21 tax year.
Some of these changes have the potential to have considerable implications for your tax bill, depending upon your specific circumstances.
Here is a selection of the most significant changes:
Capital Gains Tax (CGT):
Some of the biggest changes in April relate to CGT, with extensive changes to Private Residence Relief and Lettings Relief set to come into effect.
While current and former landlords will be most affected by the changes, people who choose to stagger the buying and selling process so that they only sell up after buying their new home could be at increased risk of incurring a tax bill that they would not previously have received.
Until now, homeowners have had 18 months in order to complete the sale before CGT applies, however, restrictions to Private Residence Relief will see this slashed to just nine months from April, meaning conveyancing and finance delays could lead to an unexpected CGT bill.
Furthermore, from April, Lettings Relief – which discounts from the CGT calculation by up to £40,000 any time during which a landlord used a property as their main residence – will be restricted to circumstances where the landlord lived at the property with their tenant.
Compounding the potential additional tax bills that arise from the changes is a new requirement for CGT on residential property to be calculated and paid within 30 days of the completion of the sale, rather than being included at least 10 months later on an individual’s Self-Assessment Tax Return. Taxable gains from a sale will need to be reported via a standalone online return, but will still also need to be included in a person’s subsequent Self-Assessment Tax Return for the year.
National Insurance Contributions (NICs)
The NICs threshold is set to rise by more than 10 per cent to £9,500 a year, for both the employed and self-employed. The average employee is expected to pay around £104 less as a consequence in 2020/21.
The key change in relation to Income Tax is that there will not be a change to the thresholds for the first time in several years, unless the Chancellor changes course at the Budget on 11 March.
The personal allowance and the basic rate limit will not change for the first time in several years.
VAT zero-rating now applicable to businesses e-publications
Businesses that rely on the production of guides, physical books, newspapers or other printed materials currently enjoy a zero-rating for VAT.
However, those who sell and publish similar content online have had to pay VAT at the standard rate.
This is now set to change after a decision made by the Upper Tax Tribunal (UTT) confirmed that the suppliers of electronic literature should now consider their supplies zero-rated in the same way as their physical printed equivalent.
The UK has had the opportunity to keep both supplies zero-rated for some time after the EU adopted a VAT Directive permitting EU member states to tax the supply of electronic publications at the same rate of VAT as the printed equivalents.
Despite this directive, the UK has not decided to follow suit and the supply of content electronically has remained standard-rated for VAT.
The decision that looks set to change this now though is the case of News Corp UK & Ireland Limited ( UKUT 0404 (TCC), decided 24 December 2019).
During the case at the UTT, News Corp argued that its supply of its newspaper electronically was still the zero-rated supply of a newspaper in accordance with Item 2, Group 3, Schedule 8, VAT Act 1994.
However, HM Revenue & Customs (HMRC) defended the current arrangements saying that it was a supply of electronic services and therefore standard-rated.
Having weighed up both arguments, the judge found that there was no material difference and that the electronically supplied newspaper should, therefore, be zero-rated.
Within the judgment, the UTT indicated that restrictions would apply and clarified what might, or might not, be acceptable as an electronic equivalent to a newspaper. It is thought that this ruling, using the judicial “tool of construction”, applies not only to digital newspapers but to many other forms of digitally supplied literature too.
Businesses which purchase digital publications but which have been unable to recover all the VAT incurred should consider approaching their suppliers and requesting a refund of the overcharged VAT, while the suppliers themselves should consider whether to zero-rate future supplies.
They may also wish to make claims to HMRC in respect of overpaid output tax, which may help them to cover any requests from customers who are seeking to recover the VAT themselves.