For most UK taxpayers – whether you’re at the helm of a business or if you’re a PAYE employee – every penny counts. The arrival of a new tax year, which brings into effect rule changes announced previously, can therefore have a big impact on your finances.
In this blog, we’ll explore five key alterations that will come into force from April 6th, helping you to gain a better understanding of what 2018/2019 has in store.
New Tax Year: Income Tax
Good news: the vast majority of taxpayers will be pleasantly surprised by the 2018/2019 income tax changes.
The personal allowance will be increased from £11,500 to £11,850; and, for workers in England, Wales and Northern Ireland, tax rates are staying the same in this new tax year. For basic-rate tax payers, this remains at 20 ; for higher-rate tax payers, it’s 40 , with an income threshold of £46,351 (reflecting the personal allowance of £11,850 plus taxable income of £34,501); for additional-rate tax payers, it’s 45 , and this comes into effect when taxable income reaches £150,000. In addition, the same rules apply for higher-income earners, who will continue to see their personal allowance fall by £1 for every £2 that is earned over £100,000.
Whilst National Insurance Contributions remain unchanged, the thresholds have been altered. 12 will now be owed on earnings over £8,424, and the Upper Earnings Limit has been raised to £46,350 (meaning that 2 will be owed on earnings above that amount).
New Tax Year: Scottish Tax
Note that above we mentioned income tax for England, Wales and Northern Ireland – and that’s because, if you live in Scotland, things are about to change. Though the personal allowance remains the same as the rest of the UK, from April 6th 2018 Scottish taxpayers will be subject to five different bands, as follows:
- 19 . A starter rate of tax, which is applicable to income earned between £11,850 and £13,850.
- 20 . This applies to income earned between £13,850 and £24,000.
- 21 . An intermediate rate of tax, which is applicable to income earned between £24,000 and £43,430.
- 41 . This applies to income earned between £43,430 and £150,000.
- 46 . This applies to any earnings over £150,000.
New Tax Year: Tax-Free Dividend Allowance
Many business owners earn only a small salary but receive most of their income via dividends. However, the benefits of doing so are set to change, as the dividend tax-free allowance will drop from £5,000 to £2,000 in the new tax year.
The way that you pay tax on dividends depends on which bracket you fall into – basic, higher or additional rate. For basic-rate tax payers, you’ll pay 7.5 tax on any dividends above £2,000. For higher-rate taxpayers, you’ll pay 32.5 ; and for additional-rate taxpayers, the rate is 38.1 .
New Tax Year: Buy-to-Let Landlords
The second phase of the planned cuts to tax relief for buy-to-let landlords starts on April 6th. In the previous tax year, landlords were able to claim 75 of their mortgage interest at the higher rate of tax, and 25 at basic rate.
From now on, landlords will only be able to claim higher-rate relief on 50 of the mortgage interest, and a 20 tax credit relief will be available for the rest of the payments. As most landlords are involved in interest-only mortgages, the financial impact could be significant.
This is only the second stage in the planned cuts, however; by the 2020/2021 tax year, higher-rate relief will no longer be available on any portion of mortgage interest payments.
New Tax Year: Council Tax
All UK residents are likely to see an increase in council tax: in England, an average rise of 5.1 , and in Scotland, 3 . The maximum increase allowed in England was 5.99 , whereas in Scotland it was 3 ; the Welsh Assembly, by contrast, did not impose any limits – meaning that some areas, like Pembrokeshire, will experience council rate increases of a whopping 12.5 .
If you’re feeling confused about the new tax year, and what the proposed changes could mean for your business, feel free to contact IBISS & Co. Experts in both accountancy and tax advice, our personable, professional team will help you untangle the nuances of tax regulations, ensuring that you are both compliant and confident when it comes to running your company.