It’s that time of year again – the start of April brings with it changes to a number of tax rates and bands, as well as a cut in the dividend allowance.
Dividend Allowance cut from £5,000 to £2,000
Most contractors suffered from the major overhaul to dividend taxation, which took place only two years ago – in April 2016. The new tax rates increased the tax liability for many by thousands each year.
Unfortunately, the tax efficiency of drawing down income in the form of dividends, rather than salary, is still too beneficial according to the current Government. As a result, the Dividend Allowance will be reduced from its current level (£5,000) to a mere £2000 from April 6th 2018.
This ‘allowance’ was never as generous as one might have thought. It means that the first £2,000 of dividends are not taxed. But, this sum still takes up £2,000 of the tax band into which it falls. You can find out more here.
Capital Gains Tax
The annual exemption increases from £11,300 to £11,700. Beyond this, gains made from asset sales are taxed at 10%/20%, or 18%/28% for residential properties and carried interest.
The Entrepreneurs’ Relief lifetime allowance remains £10m.
The Benefit in Kind rates for company cars is increasing – according to the CO2 emissions of your vehicle. The BiK percentages below are applied to the list price of all petrol, LPG and diesel-hybrid cars.
For cars which run solely on diesel, add a 4% premium to the figures below (2018/19). The benefit for electric vehicles is 13%.
|CO2 Emissions||2018/19 BiK %||2017/18 BiK %|
|For each additional 5g, add 1%||–||–|
|Until maximum is reached||37%||37%|
The car fuel benefit charge is £23,400 (it was £22,600).
The personal allowance is £11,850 for the 2018/19 tax year (previously it was £11,500).
The basic rate income tax band starts at £34,500 for 2018/19 (previously it started at £33,500).
This means that the higher rate threshold (assuming you can claim the entire personal allowance) starts at £46,350.
The marriage allowance for 2018/19 is worth £238 (up from £230).
Please note: Different rates and tax bands apply in Scotland.
|Basic Rate (20%)||£0-£34,500||£0-£33,500|
|Higher Rate (40%)||£34,501-£150,000||£33,501-£150,000|
|Additional Rate (45%)||Over £150,000||Over £150,000|
The Residence Nil Rate Band rises to £125,000 from £100,000 for deaths which occur during the 2018/19 tax year.
The tax-free limit for Cash/Shares ISAs remains at £20,000, as does the Lifetime ISA (£4,000). The Junior ISA limit rises to £4,260.
Employers’ NICs are 13.8% of earnings over £162 per week.
Employees’ NICs are 12% on earnings of between £162 and £892 per week, and 2% thereafter.
The Lifetime Allowance rises to £1,030,000 (from £1m). The Annual Allowance remains at £40,000.
Tax Efficient Savings
The investment limits for the main schemes remain unchanged.
|SEIS (Seed Enterprise Investment Scheme)||£100,000||£100,000|
|VCTs (Venture Capital Trusts)||£200,000||£200,000|
|EIS (Enterprise Investment Scheme)||£1m||£1m|
Value Added Tax
From April 1st 2018, the registration threshold for VAT remains £85,000. The deregistration threshold is £83,000. These thresholds will be frozen for two years.