The new tax year signals a number of legislation changes for businesses and individuals. To keep you up to date with the latest reforms, here’s our rundown of what is most likely to affect you as of 6th April 2018:
Personal Allowance rises
The new threshold sits at £11,850, meaning there is no tax payable on income below this figure. As a result of the continued year-on-year increases, a typical base rate taxpayer is now taking home £1,075 more a year than in 2010/11.
The threshold for higher rate taxpayers has also risen from £45,000 to £46,350, signalling a tax reduction of £337.50 per year for those earning above this sum. The Government has also committed to continue raising the higher rate threshold to £50,000 by 2020.
Dividend Allowance reductions
A further squeeze on freelancers, contractors and limited companies sees the Dividend Allowance reduce from £5,000 to £2,000 per annum. This equals an additional tax liability of £225 for basic rate, £975 for higher rate and £1,143 for additional rate taxpayers.
Hourly wage rises
Employees aged 25 and above and not in their first year of an apprenticeship are legally entitled to receive the National Living Wage, a figure which now stands at £7.83 per hour. Those aged 21 – 24 will see their hourly wage increase to £7.38, £5.90 for 18 – 20-year-olds, £4.20 for under 18s and £3.70 for apprentices.
Changes to benefit in kind rates for company cars
The benefit in kind tax rates for company cars has increased, a figure which depends on the CO2 emissions of the vehicle, as outlined in the table below:
|2017/18 benefit in kind percentage applied to list price||2018/19 benefit in kind percentage applied to list price|
|0 to 50||9%||13%|
|51 to 75||13%||
Increase in R&D allowance
The rate at which companies can claim back spend on research and development (R&D) expenditure and activities has risen from 11% to 12%, giving businesses an even greater incentive to utilise this lucrative tax incentive. To date, we’ve helped our clients claim back more than £18million.
Continued reductions to buy to let benefits
Restrictions on how the mortgage interest affects income from residential property lettings continues to bite in 2018/19. Now only 50% of any mortgage interest paid can be deducted from rental income, meaning some higher rate taxpayers will see an increased tax liability again this year. This figure continues to reduce by 25% year-on-year until it reaches 0% by 2020/21.
Inheritance Tax changes
Married couples and civil partners can now pass on a potential of £900,000 to their heirs free of any Inheritance Tax. The Inheritance Tax allowance, called the nil rate band, remains frozen at £325,000 per person and any amount above this will be taxed at 40%. The additional Inheritance Tax allowance, known as the residence nil rate, also rose from April. This only applies on an estate that includes a property being passed on and gives an additional £125,000 per annum, which takes into account the surge in property prices.
Nine million auto-enrolled employees will now pay more into their pensions as the monthly contributions triple from 1% to 3%. This Pensions Lifetime Allowance has also risen from £1million to £1,030,000.
Graduate loan repayments
The threshold at which graduates begin to repay their students loans has risen to £25,000 for plan 2 and £18,330 for plan 1, to mirror average earnings and assist those starting their careers. The threshold for repayment is based on total income, so the combined figure of salary and company dividends.
For more information and to discuss your personal or business tax liabilities, contact your local Champion office in Manchester, Chester, Preston and Blackpool.