It’s with a sense of déjà vu the Keytime team wishes you another Happy New Year! We’ve moved into April and, therefore, a brand-new tax year. This is essentially a Spring clean – courtesy of HM Treasury – that provides accountants with an ideal opportunity to review, reassess and revise.
There are a host of changes to factor into your planning and make clients aware of. While no dramatic changes to legislation, the 2018/19 tax year is making its presence known with a series of adjustments, including to personal allowances, pensions and dividends, to mention but a few.
Below is an overview of what to expect from this month onwards:
The usual increase in personal allowance sees a rise from £11,500 to £11,850. It means a small reduction of around £70 a year for most people. For higher rate tax payers, 40% tax will start on earnings above £46,350, which is an increase from £45,000.
Meanwhile in Scotland the changes look a little different. The personal allowance threshold of £11,850 is the same, but after that the first £2,000 of earnings are taxed at 19%. Then it moves to 20% tax until earnings hit £24,000, where it rises to 21%. After £43,430 the rate is 41% and over £150,000 it is 46%. The dividend tax over £2,000 is 7.5% up to £34,500 and beyond this, 32.5% tax. Dividends above £150,000 will be taxed at 38.1%.
Now NICs will be charged at 12% of income on earnings above £8,424, which is an increase from £8,164. On earnings of more than £46,350, the rate falls to 2%. Limited company directors (those receiving a salary) must pay Class 1A Employee and Employer secondary NICs.
Auto-enrolment pension contributions have gone up, for employees and employers alike in a move to further boost the nation’s pension pots. While employees must pay a minimum of 3% of their wages into a pension (a rise from 1%), the employer contribution has moved up from 1% to 2%. These amounts could be higher for you or your employer because of your pension scheme rules. In some schemes, your employeer has the option to pay in more than the legal minimum. In these schemes, you can pay in less as long as your employer puts in enough to meet the total minimum contribution.
Capital gains tax
The Capital Gains Tax annual exemption amount has risen in line with the Consumer Price Index from £11,300 to £11,700. A reminder that those selling a business as a sole trader or partnership may be able to benefit from entrepreneur’s relief to reduce the capital gains tax rate.
Previously it was possible to earn up to £5,000 on dividends without paying tax, but this has now fallen to £2,000. Which? Recently calculated that if £10,000 in dividends were earned during a year, a basic rate taxpayer would see their tax bill go up by £225, while a higher rate taxpayer would pay a further £975.
There is a rise in the diesel supplement paid on company cars, which goes from 3% to 4% and increases the level of the taxable benefit for diesel cars (it doesn’t apply to hybrid cars). If an employer covers the cost of fuel for personal use, or allows personal use of a company van, it is viewed as a benefit in kind – and this tax rate has gone up this year. A director or employee that has both a company car and free fuel will be taxed on the cash equivalent of the benefit – and the cash amount has increased to £23,400 (from £22,600).
In previous years landlords could offset all mortgage interest payments against rental income, this then fell to 75% in the 2017-18 tax year. This April it has shrunk down to 50%, which may mean an increased tax bill for many.
Student Loan threshold
The Department for Education has confirmed that the earnings threshold has shifted for the repayment of student loans. Plan 1 loans will rise to £18,330 and Plan 2 loans will rise to £25,000. Note that this applies to current and future student loans.
Childcare voucher scheme
This popular employer voucher scheme — which offers parents vouchers worth up to £55 per week to help pay for childcare — had been due to close to new entrants at the end of the last tax year. But with an 11th hour reprieve, it has now been extended to October.
Increase in wages
The minimum hourly wage rate – both National Minimum and National Living Wage – has increased. The exact amount depends on the age of the employees. The National Living Wage has seen a significant boost of 4.4%, from £7.50 to £7.83.
Benefit in kind
‘Making good’ is when an employee gives something (i.e. a cash payment) to an employer in exchange for a benefit in kind. There is now a statutory deadline for ‘making good’ on non-payroll benefits in kind. Employees must now ’make good’ on a benefit received by the 6th July after the end of the tax year.
This allows one partner to move a certain amount of their unused personal allowance to their partner who earns more. The partner earning less must have an income below the personal allowance. The transferable amount available to couples in the 2018/19 tax year will be £1,190.