A summary of tax changes from April 2018

Changes to tax and NIC from April 2018

MTD

From the beginning of April 2018 the personal tax allowance will increase to £11,850 per year.   Tax rates will be:

England and Wales
Basic rate 20% On the next £34,500 above the personal tax allowance
Higher rate 40% On £34,501 to £150,000 (the personal allowance reduces once earnings reach £100,000)
Additional rate On earnings above £150,000

 

Scottish rates and bands

On the 20 February 2018 the Scottish Parliament set the following income tax rates and bands for 2018/19.

Bands Band name Rates (%)
Over £11,850*-£13,850 Starter Rate 19
Over £13,850-£24,000 Basic Rate 20
Over £24,000-£43,430 Intermediate Rate 21
Over £43,430-£150,000** Higher Rate 41
Above £150,000** Top Rate 46
Tax on Dividends

The dividend allowance of £5,000 at 0% personal income tax, will reduce to £2,000 per year from April 2018.  Shareholders will be worse off by £225, £975 or £1,143 a year depending on whether they pay tax at the basic rate, higher rate or the additional rate.   Dividend tax rates have not changed, and the rate of tax on dividends remains at 7.5% for basic rate taxpayers, 32.5% above the higher rate threshold and 38.1% for those in the additional rate band (ie. Earning over £150,000).    For many owner-directors, the dividend/salary split will still be the most tax efficient method of remuneration, but it may not suit all.

Corporation tax remains at 19%

National Insurance

Self-employed people will continue to pay Class 4 and Class 2 National Insurance Contributions (NIC).  The abolition of Class 2 NIC was scheduled for this April, but it has been delayed until April 2019.  Class 4 NIC will be 9% on profits over £8,424. Class 2 NIC will be £2.95 per week, to be added to your 2018/19 tax bill as one total for the tax year.

Other changes

The national living and minimum wage rates increase from 1st April 2018 to:

Category of worker Hourly rate
Aged 25 and above (national living wage rate) £7.83
Aged 21 to 24 inclusive £7.38
Aged 18 to 20 inclusive £5.90
Aged under 18 (but above compulsory school leaving age) £4.20
Apprentices aged under 19 £3.70
Apprentices aged 19 and over, but in the first year of their apprenticeship £3.70
Pension Contributions

Minimum auto-enrolment (workplace pension) contributions have been 1% from both the employee and employer.  From 1st April this changes to 3% contributions paid by the employee, and 2% paid by the employer.  This will change again in April 2019.

GDPR

Something not directly related to tax and accountancy, but that will affect all businesses will be the introduction of the General Data Protection Regulation (GDPR).  This is a fairly significant upgrade from the Data Protection Act 1998, which just wasn’t sufficient for the online environment that we use now.  The GDPR comes into effect from 25th May 2018.  There is no exemption for small business, and fines for non-compliance will be from 4% of turnover.

Businesses complying with the DPA 1998 shouldn’t have too much trouble preparing for 25th May, but assessing the data you hold, documenting what you do with it, rewriting policies and communicating with data subjects (customers, suppliers, employees) can be time consuming.   The ICO website is a good place to start, if you’ve not already looked at this.

Making tax Digital (MTD)

Making tax digital (aka quarterly accounting), has been delayed for a couple of years.  It will start for VAT only from April 2019.  The new rules will encompass VAT registered businesses with a turnover above the VAT threshold (currently £85,000)  From 1st April 2019 records will need to be kept using ‘functional, compatible’ software. Compatible meaning it must be able to upload information direct to HMRC each quarter.

MTD for income tax, corporation tax etc. will follow after 2019.  It will mean 5 updates to HMRC being made each year, instead of the one annual tax return.  There will be an obligation to keep records electronically.  You’ll upload sales, expenses and profit figures each quarter, then a 5th report (if necessary) will be used to claim allowances and reliefs that are not included in normal day-to-day bookkeeping.

The well-known software companies are developing solutions, as well as some of the lesser known software houses. HMRC has said it will not be providing free software, as it currently does for both VAT and personal self-assessment tax returns.

This is a very brief summary, and there could be many other factors to consider in your own business. If you’d like any help with your tax, bookkeeping or accountancy, please get in touch.

Spring Budget 2017 – What you need to know

In yesterday’s Spring Budget 2017 the government announced that its aims are to:

  • help young people from ordinary working families across the country get the skills they need to do the high-paid, high-skilled jobs of the future, vital for a competitive workforce,
  • give more children the chance to go to a good or outstanding school that sets them up to succeed,
  • support the social care system with substantial additional funding, so people get the care they deserve as they grow older, and support both local NHS plans and improvements to Accident and Emergency with new capital investment,
  • invest in cutting-edge technology and innovation, so Britain continues to be at the forefront of the global technology revolution,
  • continue to bring down the deficit so the UK gets back to living within its means.

I think most of us will read that with cynicism, and we want to cut through the chancellor’s jibes and digs at the opposition and find out how we’ll be affected.   There was little in the way of surprises, or measures to help small businesses.   I’m not going to address every aspect of the budget, but here is a brief round up of the main headlines relevant to small businesses:

Income Tax

From April 2017 the personal tax allowance will be £11,500. The higher rate threshold increases to £45,000.

National Insurance

For self-employed people:  from April 2018 class 4 NIC increases from 9% to 10% on taxable profits above the lower profits limit.  The lower profits limit in 2017/18 will be £8,164.  Class 2 NIC will be abolished from April 2018.

Self-employed people earning a taxable profit of over £16,250 will pay more NIC from April 2018.

Making Tax Digital

From April 2018 small businesses must to report financial data to HM Revenue and Customs quarterly.  This won’t be implemented until April 2019 for those with a turnover below the VAT threshold.   Businesses with a turnover of £10,000 or less will not need to change to quarterly reporting.

VAT

The registration limit will increase to £85,000 from April 2017, and the de-registration limit will be £83,000

Business Rates

Increases will be capped at £50 for businesses coming out of Small Business Rate Relief.  There will be a £300 million discretionary fund for local authorities to help businesses affected by rates revaluation.

National Minimum and Living Wage

Increases will apply from April 2017

Spring Budget 2017: Living and minimum wage rates UK
Changes to the National Living and Minimum Wage

Consumer protection

Something to be aware of – a new green paper will be published on protecting consumer rights. Changes will include new protections against unfair clauses, unexpected fees when subscriptions renew or free periods end, and steps to simplify terms and conditions.

Spring Budget 2017: Limited Companies

Dividend Allowance

The dividend allowance will be reduced from £5,000 to £2,000 per year from April 2018.  Costing from £225 for owner/directors of small limited companies.

Corporation tax

A little good news for limited companies will be the fall in corporation tax rate to 19% from April 2017, and to 17% in April 2020.

R&D Tax credits

The government will make administrative changes to the Research and Development Expenditure Credit, to increase the certainty and simplicity around claims. They have also promised to take action to improve awareness of R&D tax credits among SMEs.

Summary

The Spring Budget 2017 was the last time a budget will be held in spring.  From 2018 there will be a Spring Statement and the budget will be held in autumn.

In the short-term it could be beneficial for some self-employed people to incorporate their business. Traders would gain a little control over their remuneration, splitting between salary and dividend payments. However, the trend over the last couple of years has been for the government to try to reduce the difference in taxation between different business vehicles.  It could be just a matter of time before we see an increase in tax on dividends, or the introduction of an NI charge on dividend income.

The government budget documents provide further information.

If you’re concerned about how any of the changes in the Spring Budget 2017, please get in touch.

 

Tax changes from April 2016

Tax changes from April 2016 – what’s new?

There are many changes being implemented in UK taxation and accounting rules this year.  This is a very brief summary aimed at owners of small businesses, sole traders and sole directors.

Personal tax allowances and tax bands

  • The income tax personal allowance increases to £11,000 and the basic rate limit increases to £43,000.
  • Married couples’ can share part of their allowance, for low income families.
  • Income tax remains at 20% (basic rate) 40% (higher rate) and 45% (upper rate).
  • The capital gains tax (CGT) exempt amount is £11,100.
  • CGT rates remain at 18% (basic rate taxpayers) 28% (higher rate taxpayers).

Savings

  • There is a 0% savings tax band of £5,000 and a new 0% personal savings allowance of £1,000 for basic rate payers and £500 for higher rate payers.
  • There is a new range of ISAs savings including a right to buy ISA and it is anticipated a crowdfunding ISA will be launched.

Dividends

  • A new tax regime for dividends begins from April 2016.
  • Dividends will be taxed at 0% for the first £5,000, then 7.5% (basic rate), 32.5% (higher rate) and 38.1% (upper rate).

Employers

  • The compulsory National Living Wage (NLW) is being introduced from 1 April 2016. It is the legally required minimum level of pay for workers aged 25 and over.  The penalty for failure to pay either the NLW or the NMW of these will also increase from 100% of the underpayment to 200% of the underpayment on 1 April 2016.
  • National Minimum Wage increases have been announced for October 2016.Age 25 and over: £7.20 – (This is the National Living Wage effective from April 2016 and so will not increase in October 2016)Age 21 – 24: from £6.70 to £6.95

    Age 18 – 20: from £5.30 to £5.55

    Age 16 – 17: from £3.87 to £4.00

    Apprentice rate: from £3.30 to £3.40

    Please note – from 2017 the date for all minimum wage increase will be changed from October to April each year. This is to bring National Minimum Wage increases in line with National Living Wage increases.

 

Trivial Benefits

There will be a new exemption from income tax and national insurance for trivial benefits up to £50, with an annual cap of £300 for office holders of close companies and their families or households.   The exemption is an ‘all or nothing’ exemption: if the value of the benefit is £60 then the full amount of £60 is taxable, not just the £10 excess.   Examples of trivial benefits include things like birthday/wedding/Christmas gifts and workplace refreshments (coffee, tea, biscuits).

 

Workplace Pensions

Auto-enrolment continues to be rolled out. This is a compulsory change for everyone paying workers, and there are strict deadlines and procedures to meet.  I have arranged for a cost-effective solution for my payroll clients, and will be speaking to everyone in due course. If you process your own payroll, make sure you check your staging date on the Pensions Regulator website, and start preparing in plenty of time.

RTI (real time information)

The temporary relaxation in RTI reporting for micro employers will end as planned on 5 April 2016. The concession allowing employers to submit returns up to three days late without being subject to late filing penalties is withdrawn.

National Insurance

From 6th April there will be no Employers’ NIC on wages paid to apprentices aged under 25 or employees under 21 earning up to the Upper Earnings Limit of £43,000.

The Employers’ NICs allowance increases to £3,000 but is no longer available for companies where the sole director is the only employee.

 

 

For more information on any of the above please get in touch.

 

 

Minimum wage increase October 2014

PenniesThe UK minimum wage increases by 19p per hour on 1st October 2014, for all workers aged 21 and over.

Rates for people under 21, and apprentices also increase by a few pence per hour.

Getting it right

Year 21 and over 18 to 20 Under 18 Apprentice*
2014 (from 1 October) £6.50 £5.13 £3.79 £2.73
2013 (current rate) £6.31 £5.03 £3.72 £2.68

*This rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the National Minimum Wage for their age.

The minimum wage applies to most workers over 16 years of age, in the UK, It does not apply to self-employed people, company directors, volunteers, workers younger than school leaving age and a few others.

Making mistakes

Employers who discover they’ve paid a worker below the minimum wage must pay any arrears immediately. There will also be a penalty and offenders might be named by the government.

HM Revenue and Customs (HMRC) officers have the right to carry out checks at any time and ask to see payment records. They can also investigate employers, following a worker’s complaint to them.

Employer’s must keep records proving that they are paying the minimum wage. Most employers use their payroll records as proof. All records have to be kept for 3 years.

The minimum wage is not just for staff paid hourly. You need to make sure that salaried staff, whose pay may be calculated on a weekly, monthly or annual basis are also being paid within the minimum wage regulations.

More information can be found at www.gov.uk or you can contact us to ask a question.