New UK tax year: what 2019-2020 means for freelancers and small businesses
Each April welcomes the start of a new tax year in the UK. As always, the new tax year means new tax rates and thresholds, many of which were announced in the 2018 Autumn budget.
Many of these changes have a big impact on business owners, freelancers, and the self-employed. So to help you understand how your business might be affected by the new tax year, we take a look at what's new for 2019-2020.
UK tax year dates
The UK tax year dates are the same every year, with each tax year running from April 6th to April 5th. The previous tax year (2018-2019) ended at midnight on Friday April 5th, and the current tax year (2019-2020) started on the morning of Saturday April 6th.
Bear in mind that the tax year is not always the same as your accounting year, and some aspects of your bookkeeping and accounting will be structured slightly differently. For example, your VAT taxable turnover is calculated on a 12-month rolling period rather than from April to April. Similarly, many small businesses structure their invoice numbers around the calendar year rather than the fiscal year or tax year.
Bookkeeping and accounting in the new tax year
Many aspects of bookkeeping and accounting are based around the tax year. It’s therefore important that you record income and expenses in the correct tax year, and the way you work out which year a transaction falls under depends on which accounting method you use.
If you use accrual accounting, you should record income and expenses on the day that you receive or issue an invoice. This means that any transaction that occurred before April 6th will be considered to have fallen within the 2018-2019 tax year, regardless of when you receive payment, while transactions from April 6th onwards will be part of the 2019-2020 tax year.
For example, you issue an invoice on April 1st 2019 and your customer pays on April 10th. Because the invoice was raised before the start of the new tax year, the income you received counts towards your 2018-2019 tax year.
If you use cash accounting, things work slightly differently. Because income and expenses are recorded on the day that money changes hands, it’s possible that you will raise an invoice in one tax year, but record it as income in the next.
Using the same example as before, the money you receive counts towards your 2019-2020 tax year. It doesn’t matter in which year or period the invoice was issued, it only matters when the invoice was settled.
Changes to tax thresholds in the new UK tax year
One of the main changes that occurs with the start of the new tax year is adjustments to tax thresholds. These changes might mean that you need to register for or start paying a new tax. They might also mean that you pay a new rate, or even that you pay less tax.
Personal Allowance in 2019-2020
Your Personal Allowance is the amount of money you can earn without being taxed. For residents in England and Northern Ireland, the Personal Allowance has been increased. In the 2018-2019 tax year, you could earn £11,850 tax-free. In the 2019-2020 tax year, you can earn £12,500 before your income is taxed.
Income Tax in Scotland and Wales for 2019-2020
In the UK, the majority of taxes are managed and collected centrally by the British Government, but there are several taxes that are managed by individual countries, one of which is Income Tax.
The Scottish Government has collected Income Tax from Scottish residents since the 2018-2019 tax year. For the 2019-20 tax year, there are new rates for Income Tax in Scotland.
From April 6th, the Welsh Government will also be in charge of setting Income Tax rates, and Welsh residents will be taxed by the Welsh authorities rather than HMRC. Although Wales can decide on different rates, for the 2019-2020 tax year, the rates will stay the same as in England and Northern Ireland.
Capital Gains Tax in 2019-2020
Capital Gains Tax is a tax you pay when you sell or pass on assets that have increased in value, but it only applies to assets with a value above a certain threshold. In 2018-2019, Capital Gains Tax applied to assets worth £11,700 or more, in the new 2019-2020 tax year, the tax-free threshold has increased to £12,000.
VAT Threshold in 2019-2020
Unlike many other allowances and thresholds, the VAT threshold – the amount you can earn before you need to register for VAT – isn’t changing. In fact, it hasn’t changed for the last two years and is set to stay the same for another two.
This means that until April 2020, only businesses with a threshold of £85,000 or more will be required to register for VAT (although businesses with a turnover below this threshold can always opt-in voluntarily).
Changes to payroll in the new tax year
If you run your own business, it's likely that you pay yourself a salary. You might also employ other people. If you do either of these things, you will be responsible for managing payroll, and it's important to be aware of how your payroll might be affected by changes introduced in the 2019-2020 tax year.
Student loans in 2019-2020
If you’re a director of a company or take a wage from your own business, you’ll be responsible for calculating and paying any student debt you owe. And if you employ other people, you’re responsible for calculating and deducting their student loan repayments.
From April 6th 2019, the threshold for repaying student loads has increased to
- Plan 1: £18,935, up from £18,330
- Plan 2: £25,725, up from £25,000
To calculate the correct loan repayments, its essential that you know which plan you or your employee is on. Bear in mind that students from Scotland or Northern Ireland might have different plans to students from England and Wales.
The minimum wage in 2019-2020
Although not technically a change introduced as part of the new tax year, there are changes to the National Living Wage and National Minimum Wage, which vary according to age. From April 1st 2019, employees must be paid at least:
- Adults aged 25 and over: £8.21 per hour
- Adults aged 21-24: £7.70
- Adults aged 18-20: £6.15
- Children under 18: £4.35
The minimum wage for apprecentices has also been increased for the 2019-2020 tax year; you should pay any apprentices working for your business at least £3.90 an hour, up from £3.70 an hour in 2018-2019.