The new tax year arrives on April 6 and with it the new tax rates and bands.  So how will your income be taxed in the 17/18 tax year.

The Personal Allowance for 17/18 will be £11,500.  This is the amount of income you can earn before you start paying tax.

The basic rate threshold has increased to £33,500, and the tax rate remains at 20%.  So on the next £33,500 of income, after the £11,500, you will pay tax at 20%.

The higher rate threshold remains at £150,000, and income falling in this bracket will be taxed at 40%.

Savers also benefit from the Personal Savings Allowance.  This means that on the first £1,000 of savings income (eg bank interest) you will not pay any tax if you are a basic rate tax payer, and on the first £500 of bank interest for a higher rate taxpayer.  (Yes, I know – bank interest, what’s that?)

For limited company owners, and those who owns shares, the dividend allowance for this year remains the same at £5,000.  The reduction to £2,000 announced in the Budget comes into effect from 18/19.  That means the first £5,000 you receive in dividends in the year is tax free.  After that you will pay at 7.5% for a basic rate taxpayer and 32.5% for a higher rate taxpayer.

 

Then there’s National Insurance to think about.  The thresholds for NI are different to those for income tax (obviously!)

For a sole trader, for 17/18 you will still pay class 2 NIC and class 4 NIC.

 

Class 2 NIC is a flat rate of £2.85 per week and is collected once a year when you submit your tax return.  If your profits are less than £6,025 then you will be exempt from paying class 2.  The exemption is automatic – it does not need to be claimed.

 

Class 4 NIC is payable on your profits.  You will pay class 4 NIC on profits over £8,164 and up to £45,000 at a rate of 9%.  Over £45,000 the rate is reduced to 2%.

 

This means that if your profit for 17/18 is between £8,164 and £11,000, you won’t pay income tax but you will pay National Insurance.

For employees, including directors of limited companies, you pay class 1 NIC on your salary.  For a director, you only pay NIC once your salary for the year is over £8,164; hence this being the rate at which may directors chose to pay themselves! Over this amount the rate of class 1 NIC is 12%.  The company will also pay class 1 NIC at a rate of 13.8% on salary over this level.

So – so much for tax simplification!  This blog covers the main tax bands for the year, but there are other exceptions etc and rates for certain types of income that are not covered here.

 

For more information or help please contact Rosie Forsyth.