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.

Autumn Statement 2014

The government expects future growth to come from smaller businesses and targeted a significant proportion of the autumn statement towards them.

Small business measures included reducing employment taxes and encouraging apprenticeship schemes for the under 25s, as well as a review of business rates. Pennies

PERSONAL

INCOME TAX

The personal tax allowance will increase to  £10,600 a year from April 2015. The higher rate threshold will rise from £41,865 this year  to £42,385 next year.

ISAs

The annual ISA allowance will increase to £15,240 a year from April 2015. ISA savings that are inherited by a surviving spouse from a deceased partner will retain their tax-free status.

PENSIONS

The 55% tax on unused inherited pension pots will be scrapped. People who die before they are 75 will be able to pass on joint life or guaranteed term annuities tax free.

RESIDENTIAL PROPERTY STAMP DUTY

The way stamp duty is applied to residential properties will change to a marginal rate system. From midnight on 3 December 2014, rates will only apply to the proportion of the property price that falls within each band. The rate will be 0% on the irst £125,000, rising to 12% on prices above £1.5 million.

BUSINESS

BUSINESS RATES

Small business rate relief will be doubled for another year. The inlation-linked increases to business rates will be capped at 2%. There will be a review of the structure of business rates. The business rates discount for certain high street shops will increase by 50% to £1,500.

RESEARCH AND DEVELOPMENT

Research and development tax credit will increase to 230% for small and medium sized businesses and 11% for large firms.

NATIONAL INSURANCE

Businesses will not have to pay national insurance contributions when they hire apprentices who are under 25, up to the upper earnings limit. National insurance contributions for employing anyone under 21 will be abolished from April 2015.

OTHER ANNOUNCEMENTS

TAX AVOIDANCE

A continued crackdown on tax avoidance and evasion will raise at least £5 billion in the next parliament.

VAT REFUNDS

Hospice charities, search and rescue services, and air ambulances will benefit from VAT refunds.

CARERS

Carers will be included in the employment allowance which reduces employer national insurance contributions by up to £2,000.

FUEL DUTY

The freeze on fuel duty will continue.

The government has published the autumn statement documents here, for anyone who would like more information.   The effect of changes on your own tax situation will depend upon your own circumstances. If you would like to discuss how any changes may affect you or your business please get in touch.

Payroll changes 2014-15

Payroll changes 2014-15Payroll changes 2014-15 are the usual updates to tax codes, tax rates and NIC rates.  Good news includes a delay in the implementation of late filing penalties under the RTI system, and a £2,000 reduction to employer’s NIC.  On the downside, employers will no longer be able to reclaim SSP paid to employees.

 

RTI LATE FILING PENALTIES

The penalties for late filing of the FPS files which were due to commence April 2014 have been postponed until October 2014.

The FPS files are the Real Time Information (RTI) reports sent each pay period and are due on or before the pay date. The fines are per late FPS and depend upon the number of staff you have:

Staff Monthly Penalty

  • 1 to 9 employees  £100
  • 10 to 49 employees £200
  • 50 to 249 employees £300
  • 250 or more employees £400

The penalty notices will only be sent out quarterly ,so the bill could be quite high when you receive it.  Payment is due within 30 days of the notice.

Where an FPS is late for more than 3 months and the information is not included on a later submission a further charge is made – 5% of the Tax/NICs which should have been on the submission.

SSP RECLAIM ABOLISHED

From April 2014 the reclaim of SSP will be abolished. You still need to keep a record of SSP paid in the normal way but there will be no reclaims at all. Reclaims for SMP, SPP and SAP remain the same.

TAX RATES 2014-15

The new standard tax code is 1000L

Tax Bands:

  • 20% £1 to £31,865
  • 40% £31,866 to £150,000
  • 45% £150,001 and above

NIC Thresholds 2014-15:

Payments start from the primary threshold: weekly pay of  £153, monthly £663, annual £7,956

Employees deductions are 12% on amounts above the primary threshold, up to £805 weekly/ £3,489 monthly then 2% on all other earnings

Employers liability: 13.8% on all earnings above the secondary threshold (values are the same as the primary threshold mentioned above).

The threshold for statutory payments is £111 per week.

SSP rate £87.55 per week

SMP/SPP/SAP standard rate £138.18

Student loans are recovered at 9% on earnings above: weekly £325.19 , monthly £1,409.16 or annual £16,910.00.

£2,000 NIC ALLOWANCE

HMRC are introducing a £2,000 Employers Allowance to be offset against your Employer’s NIC. Most employers are eligible for this and we will be taking it into account on your monthly PAYE Summaries.

There are a small number of employers who are not eligible and you can check your entitlement by logging on to the following website:

https://www.gov.uk/employment-allowance-up-to-2000-off-your-class-1-nics