It’s the start of the next tax year and that means all the numbers and thresholds have changed again.
Here’s what you need to know about this year’s allowances and at what rate you will pay tax.
Tax Rates and Allowances
- The income tax personal allowance is now £11,850 – you can earn this amount before you start to pay tax
- The basic rate limit is now £46,350. That means that on income between £11,850 and £46,350 you will pay tax at 20%. Over this you will pay 40%, and over £150,000 you will pay 45%
- Dividend allowance is now reduced to £2,000 (from £5,000). The first £2,000 of dividends you receive in this tax year are tax-free.
- Dividend tax rates otherwise unchanged. Dividends are taxed at 7.5% (basic rate), 32.5% (higher rate) and 38.1% (upper rate).
- Since April 2016, savings interest has been paid gross by the banks, and the Personal Savings Allowance (PSA) has come into play. The PSA means every basic-rate taxpayer can earn £1,000 interest per year without paying tax on it. Higher rate payers get a £500 allowance, and additional rate taxpayers don’t get an allowance
- A new lifetime ISA now exists to help with retirement savings or buying a first home for the under 40s.
- The annual ISA limits increase to £20,000 (£4,260 for children)
Employers NICs and payroll
- There is no Employers NIC on employees aged 21 and under, or apprentices aged 25 and under.
- The NIC Employers Allowance remains at £3,000 and is not available for companies where the sole employee is a director.
Self Employed Class 2 and Class 4 NIC
- Both class 2 and class 2 NIC are still here for this tax year, class 2 is due to be scrapped from 6 April 19
- Class 2 NIC is £2.95 per week and is payable if profits are over £6,205. It may be worth still paying the class 2 NIC is your profits are lower than this as it gives you another year towards your state pension
- Class 4 NIC is payable on profits over £8,424 and up to £46,350
- Both types of NIC are collected via self-assessment
Marginal tax rates
There are several income points where the marginal extra cost in tax of each £1 over the level is disproportionately high. They are
- Over £46,350 – liability to higher rate tax
- Over £50,001 and up to £60,000 – a claw back of child benefits
- Over £100,000 – loss of personal allowances plus a requirement to file a personal tax return
- £150,000 – liability to upper rate tax
What can you do to avoid higher and marginal rate tax?
- Plan timing of dividend payments carefully
- Consider employing a spouse/partner and splitting income producing assets efficiently
- Make pension contributions which reduce your taxable income
- Make Gift Aid donations which also reduce your taxable income
What Salary Do I Pay?
- director aiming to be tax-efficient can pay £8,424 this year (£702 per month)
- at this level there is no tax or NI
- you do need to be set up as an employer and file RTI returns each month
- you can then dividends to utilise the rest of your personal allowance and use your £2,000 dividend allowance
Everyone’s tax affairs are different and so you need to review your own situation to plan effectively for the year ahead.
Please contact me for more information and help.