The new fiscal year has begun and now is the best time to learn about all the tax changes to maximise your tax efficiency and prepare your business for the 2020-2021 tax year. In addition to that, it is also essential to stay updated with all the relevant tax thresholds and rates. This article will get you ready for the end of this taxation year as well as the new taxation year that lies ahead.
Note that all the figures specified in this article apply for the taxation year 2020-2021.
Class 1 NI Contributions & PAYE Tax
PAYE is typically operated as a part of an individual’s payroll to ensure that HMRC can collect National Insurance and Income Tax from all employees. In this regard, your payroll software will assist you in calculating the amount of NI contributions and tax that you must deduct from the salary of your employees.
The PAYE tax rates, as well as threshold, vary according to the region of the country. Hence, there are three main divisions for the threshold – Northern Ireland and England, Scotland and Wales. For instance, the PAYE tax thresholds and rates for personal employee allowance in Northern Ireland and England is £240 weekly, £1,042 monthly and £12,500 yearly.
The Emergency Tax Codes that are applicable from April 6th, 2020 are 1250L W1, 1250L M1 and 1250L X.
Expenses & Benefits of Class 1A National Insurance
All business owners must pay their employees Class 1A National Insurance on all kinds of work benefits. An example of a work benefit is a company mobile phone or a laptop. All Class 1A benefits, as well as expenses, must be reported and paid by the end of the taxation year.
Sporting Testimonial Payments & Termination Awards of Class 1A National Insurance
Class 1A NI Contributions must be paid to employees on the total amount of termination awards exceeding £30,000 as well as on the total amount of sporting testimonial payments exceeding £100,000 paid by independent committees. Individuals must pay and report Class 1A on all these payment types as a part of their payroll during the taxation year 2020-21. The 2020-21 rate of National Insurance Class 1A is 13.8%.
PAYE Settlement Agreements (PSAs) On Class 1B National Insurance
If you have PAYE Settlement Agreements, you must pay Class 1B National Insurance. As a part of this process, you can make a single annual payment covering all the NI contributions and tax that is due on the irregular or small benefits or taxable expenses for your employees. The 2020-21 rate of National Insurance Class 1B is 13.8%.
Mileage Allowance Payments
These payments are essentially the amount you pay your workers for using their personal vehicles for business purposes. You can pay them an approved mileage allowance amount yearly in which case you do not have to inform HMRC. The rate per business mile differs according to the vehicle. For a car, the rate is 45 pence for the initial 10,000 miles and 25 pence for each mile after that.
Update Your Records
When it comes to issuing dividends, it is crucial to ensure that all your accounting records are updated. If you use any cloud software, your business bank account must be reconciled. In the same vein, you must ensure that your company accounts are updated with all the pension contributions, expenses, sales invoices and salaries that have been issued to all your clients. If you get this done properly, it will mean that you can make a precise assessment of the due tax and profits of your company. Then, you can calculate the dividend that you can pay the shareholders as well as yourself. Do not forget that all dividends should be paid from the available profits of the company. In case you take over the allowed amount, you could face potential interest and penalties because it is considered to be a Director Loan.
Remember Your Annual ISA Allowance
When thinking of future investments, you must check if it is possible for you to make payments into any tax-efficient savings or an ISA that also has limited on the amount you can pay in every taxation year. It is advised that you consult your financial advisor for bespoke advice and more information. In case you do not have a dedicated financial advisor or an accountant, we can help. Get in touch with us at DNS Accounting Group!
Maximise Your Pension Contributions
In case you wish to make any pension contributions for the current tax year, you must ensure that your pension provider receives all these payments by April 5th, 2021. In case you run a limited company, you must make the payments through the limited company as it is more tax-efficient. It is also possible for you to pay into your pension via your monthly payroll. Alternatively, you can also make lump-sum contributions on a periodic basis throughout the tax year.
If you ever find yourself stuck, call us on 020 3500 2646 for expert financial advice!