A new year means new HMRC rules and regulations. Here is a brief overview on the things you need to know before the 5th of April.
Personal Allowances and Reliefs
The personal allowance (untaxable income) is everything you earn up to £11,500. Earnings between £11,501 and £45,000 have the basic rate tax of 20% deducted. Earnings between £45,001 and £150,000 are subject to the higher rate tax at 40%. All earnings over £150,000 will be taxed by a rate of 45%.
An example: you earn £60,000 per year gross (pre-tax).
- Your first £11,500 is tax free.
- between £11,501 to £45,000, you pay 20 percent. 20 percent of £33,500 equals £6,700
- Between £45,001 to £60,000, you pay 40 percent. 40 percent of £15,000 equals £6,000
- You pay a total of £12,700 in tax over a year, which equates to a flat rate of 21%.
ISAs (Individual Savings Accounts)
ISAs are specific accounts on which you will not have to pay any tax on the interest. You can save up to £20,000 per year, which has risen from £15,240 it was in the previous year. For those under the age of 17, the maximum yearly investment is £4,128.
Capital Gains Tax
Capital Gains Tax involves taxing the profit on an item you have sold. For instance, you sell a painting for £30,000, that you bought for £10,000. You made a profit of £20,000, which is subject to tax. The non-taxable capital gains is set at £11,300; in other words, you can make a tax-free profit on sold goods up to £11,300.
Pension Contribution (Employee)
Currently can be paying 0.8% of your earnings towards your Workplace Pension Scheme, in which you will be automatically enrolled in if you are above the age of 22 and earn over £10,000 per year. However, for the tax year starting on the 6th of April 2018, you’ll be paying 2.4% of your income towards the scheme. The year after that, 6th of April 2019, the rate will rise to 4%.
Pension Contribution (Employer)
An employer must pay 1% of the employee’s earnings towards his/her Workplace Pension Scheme. For the tax year 2018/2019, this will increase to 2%, and in 2019/2020 the rate is set to increase to 3%.
The main rate for corporation tax is 19% until the end of March 2020. However, there can be some reductions available which are based on your expenditure and investments.
Businesses are entitled to deductions on income for costs, however, there are a few certain rules that need to be kept in mind when claiming deductions and expenses. In some cases, HMRC will consider your expenses personal. For instance, staying in a 5-star hotel while on travel, has no added benefit to your business compared to staying in lower rated accommodation. The costs must be incurred wholly and exclusively for the benefit of the business and not for any personal gain.
If an entrepreneur owns more than 5% of a company, they can get a lower capital gains tax rate of 10%, up to the lifetime limit of £10 million, which potentially could save up to £1 million.
At The Financial Management Centre, we specialise in the day to day accounting for businesses of any size. You can find your nearest office here.