Tax time: NHF explains the changes
Published
11th Apr 2018
The new tax year has brought about many changes to pension contributions, personal allowances, income tax and dividend taxation. The NHF has compiled a handy run down of the changes that might impact your business.
Pensions: Employees who pay into auto-enrolment pensions will have to pay a minimum of 3% (up from 1%) while employer contributions will rise from 1% to 2%. Further increases for employers and employees will come into effect in April 2019.
Personal allowances: Personal allowances determine how much can be earned before having to pay income tax. This figure has increased from £11,500 to £11,850, which will mean a tax cut of £70 for most people.
Higher rate income tax: The level at which people will need to start paying a higher rate of 40% tax has risen from £45,000 to £46,350.
Scotland: For the first time, Scottish tax payers will have different rates to England and Wales. The £11,850 personal allowance is the same, but the first £2,000 of earnings after that are taxed at 19% rather than 20%. After that, it’s 20% tax until earnings hit £24,000, when it rises to 21%. Then above £43,430 the rate is 41%, with a top rate tax of 46% on earnings over £161,850.
Dividend taxation: A strategy for many self-employed people is to set up companies to take payments and pay out expenses, then pay themselves a dividend from the profits. This allows for income and therefore income tax bills to be minimised. Previously, self-employed hair and beauty professionals were able to earn £5,000 a year from dividend income before paying tax, but this figure has been reduced to £2,000.
For further information on the new tax year changes click here.
Pensions: Employees who pay into auto-enrolment pensions will have to pay a minimum of 3% (up from 1%) while employer contributions will rise from 1% to 2%. Further increases for employers and employees will come into effect in April 2019.
Personal allowances: Personal allowances determine how much can be earned before having to pay income tax. This figure has increased from £11,500 to £11,850, which will mean a tax cut of £70 for most people.
Higher rate income tax: The level at which people will need to start paying a higher rate of 40% tax has risen from £45,000 to £46,350.
Scotland: For the first time, Scottish tax payers will have different rates to England and Wales. The £11,850 personal allowance is the same, but the first £2,000 of earnings after that are taxed at 19% rather than 20%. After that, it’s 20% tax until earnings hit £24,000, when it rises to 21%. Then above £43,430 the rate is 41%, with a top rate tax of 46% on earnings over £161,850.
Dividend taxation: A strategy for many self-employed people is to set up companies to take payments and pay out expenses, then pay themselves a dividend from the profits. This allows for income and therefore income tax bills to be minimised. Previously, self-employed hair and beauty professionals were able to earn £5,000 a year from dividend income before paying tax, but this figure has been reduced to £2,000.
For further information on the new tax year changes click here.
