Accounting and Payroll Round Up 2020

In 2020, the Coronavirus pandemic swept the UK causing disruption and affecting millions. To help the economy, the government introduced various schemes, grants, and tax breaks. Some of the laws due to come into play were also delayed to prevent further difficulties.

After an eventful year, we’ve rounded up some of the biggest changes to accounting and payroll in 2020.

Accounting Changes in 2020

A lot of legislation introduced in 2020 was to help businesses deal with the effects of Covid-19. However, there were also changes to the National Living Wage, Entrepreneurs Relief, and a new digital services tax. Read on to find out more.

Business Rates

In April 2020, the level of business rate relief for eligible businesses rose from 50% to 100%. This means that qualifying businesses do not have to pay business rates for the 2020-21 financial year. Qualifying businesses include those in the retail, leisure and hospitality sector.

To help struggling businesses, the government also announced a series of cash grants up to £25,000. The grants are available to businesses that qualify for business rate relief and those with a rateable value of less than £51,000.

Any business that qualifies for small business rates relief will also get a cash grant of £10,000.

Digital Services Tax

The Digital Services Tax (DST) was introduced in April 2020 to cope with the challenges faced by a digital economy. The government confirmed that the DST tax is to be revisited once a global solution is in place. To achieve a global solution the UK will need to work with the OECD Inclusive Framework and G20.

DST is applied to revenue earned from in-scope activities of large businesses. Some of these activities include social media services, online market places and search engines used by UK residents. The tax is applied when more than £500m of global revenue arises from the participation of users in the UK. However, there is an allowance of £25 million, so the first £25M of revenue generated by UK users will not be subject to the tax.

VAT Reverse Charge

Originally due to come into effect in October 2020, the VAT Reverse Charge is delayed until March 2021. The reverse charge places VAT liability with the end recipient of services instead of the supplier. For more information on how the change could affect your business read our blog previous post here.

There is also further information from the government here.

National Minimum Wage and National Living Wage

During the annual Spending Review on 25th November 2020, Chancellor Rishi Sunak announced that the National Minimum Wage and National Living Wage will increase by 2.2% from £8.72 to £8.91 per hour for employees aged 23 and over from April 2021.

Entrepreneurs’ Relief

For tax years 2020-21 onwards, Entrepreneurs’ Relief will be renamed ‘Business Asset Disposal Relief’. There is also a significant change to the amount included in entrepreneur’s relief in March 2020. The lifetime limit has been reduced from £10 million to £1 million and will apply to all qualifying disposals made on or after 11 March 2020 and to certain disposals made before that date.

There will also be an additional anti-forestalling rule applied to the new Business Asset Disposal Relief.

Payroll Changes in 2020

During 2020 many of the changes to Payroll practices were temporary measures, introduced to deal with coronavirus.

Covid-19 Job Retention Scheme

Announced by Chancellor Rishi Sunak in March 2020, the Job Retention Scheme was due to end in June 2020, but it was extended to March 2021. It allows UK employers to keep paying workers that otherwise would have been laid off during the pandemic. Employers can claim up to 80% (to £2500 per month) of furloughed worker’s wages with the choice to contribute the remaining 20%.

At first the scheme could only be used for furloughed workers who were unable to work any contracted hours. However, in July, flexi furlough was introduced, allowing employers to bring back their staff on part time or reduced hours.

The scheme is available to all UK businesses with a PAYE payroll scheme registered with HMRC, on or before 30th October 2020.

Statutory Sick Pay for Covid-19 Related Sickness

In March the government also announced that Statutory Sick Pay would be paid to all those with Covid-related sickness, including anybody self-isolating.

SSP for covid-19 related illnesses will cover £95.85 per week. More information can be found here.

Off Payroll working (IR35)

Originally due to come into effect on 6th April 2020, the private sector IR35 reforms were delayed until April 2021. The reform means contractor’s fees will be taxed at source by their clients as they would for payments made to employees.

Affected parties include:

• Individuals supplying their services through an intermediary such as a Personal Service Company (PSC) and who would otherwise be employed if engaged directly.
• Medium and large sized organisations who contract work to individuals through PSC’s
• Recruitment agencies and other intermediaries who supply staff through PSC’s

For more information on the IR35 Off-Payroll changes please refer to our previous blog post here.

Employment Allowance

This year we also saw changes to Employment Allowance and those eligible to claim for it. From 6th April 2020, new rules were introduced bringing the threshold down to £100,000. Employment allowance now also falls under De Minimis State Aid. This means it cannot be rolled over from one tax year to the next and employers must apply for it each year.

Keep up to date with the latest accounting and payroll taxes throughout the year by reading our blog.