It’s that time again when HMRC implements the changes introduced by the latest budget from the Chancellor of the Exchequer. From 6th April 2018 there will be some changes to your tax rates and allowances. In 2018 the changes aren’t as substantial as in previous years, where we’ve had to deal with things like limited cost trader and public sector IR35.
We’ve put this article together to highlight the main changes.
Increase to the Personal Allowance and the income tax higher rate threshold
The Personal Allowance – the amount you can earn before paying income tax – will increase on 6th April to £11,850 (from £11,500). This will lead to a small, but welcome reduction in tax of £70 a year for most people.
The threshold for paying the higher-rate of income tax (which is 40%) will also increase to £46,350 (from £45,000). This amount includes the increased Personal Allowance. This means a reduction in tax of £337.50 per year for a limited company shareholder being paid £46,350 or more in dividends.
To maximise your tax efficiency as a company Director and Shareholder, your company should pay you a salary of £8,424 and dividends of £37,926 in the 2018/19 tax year. Your total personal tax bill would then be £2,437.50.
If you have any questions about how these amounts have been calculated, or you’d like to your limited company to pay you more, then you should speak to an accountant for tailored advice. If you don’t have an accountant or are looking to switch, give our friendly team a call on 0333 311 8000 or arrange a free consultation.
Decrease in the Dividend Allowance
It’s not all positive though. In a further squeeze on freelancers, contractors and small businesses working via a limited company, the Dividend Allowance is being reduced to £2,000 (from £5,000) on 6th April 2018.
If you’re a basic rate tax payer paying 7.5% tax on dividends, this means you’ll pay an additional £225 of income tax on the dividends paid by your company in the 2018/19 tax year.
Company Cars: increasing the diesel supplement
From 6th April 2018 the diesel supplement paid on company cars will increase from 3% to 4%. The diesel supplement is used to calculate company car tax and car fuel benefit charge, where the employer provides the employee with a diesel car that is made available for private use.
This will apply to all diesel cars registered on and after 1st January 1998 that don’t meet the Real Driving Emissions Step 2 (RDE2) standards. This has the effect of increasing the level of the taxable benefit for diesel cars. The diesel supplement does not apply to hybrid cars.
Increase in benefit in kind tax rates for company cars
From 6th April 2018, benefit in kind (BiK) tax rates are increasing for company cars. The percentage applied to the list price of the car will increase and is based on CO2 emissions published by the Vehicle Certification Agency.
The main changes are as follows:
|CO2 emission range
||2017/18 BiK percentage applied to list price
||2018/19 BiK percentage applied to list price
|0 to 50
|51 to 75
|76 to 94
Information on the taxation of company cars, including a full list of benefit in kind percentages is available in our Taxation of Company Cars article.
Benefit in kind changes for company vans and fuel benefit paid on cars and vans
When your company pays for fuel you have used personally, or allows personal use of a company van, it is a benefit in kind. These fuel benefit charges only apply if fuel is provided for personal use.
The tax paid on such benefits is being increased from 6th April 2018. The benefit in kind (BiK) is a fixed amount for vans and the changes are as follows for directors and employees:
- The BiK on company vans increases to £3,350 from £3,230
- The BiK on fuel for a van provided for personal use increases to £633 from £610.
The fuel benefit calculation for cars is a little more complex.
A director/employee who is provided with a company car and also receives free fuel from his employer is taxed on the cash equivalent of the benefit each tax year. The cash amount is fixed each year, and increased to £23,400 (from £22,600) on 6th April 2018.
The benefit in kind charge is calculated by using an appropriate percentage, which is the same as the rate for company car benefit purposes (see above) and then multiplying by the fixed amount (£23,400 in 2018/19). So if your BiK percentage for the company car is 13%, your BiK amount on the fuel provided for personal use is £3,042 (13% of £23,400).
Capital gains tax: Increase in the annual exempt amount
The Capital Gains Tax annual exempt amount increases in line with the Consumer Price Index from £11,300 for individuals to £11,700.
Increase in the rate of the Research and Development (R&D) expenditure credit
There will be an increased rate for the R&D expenditure credit from 11% to 12%, in order to support business investment in R&D. This change will be backdated to have effect from 1st January 2018.
Student Loan Plan 1 and Plan 2 threshold increase
The Department for Education have confirmed that from 6th April 2018 the earnings threshold before you start to repay a student loan for:
- Plan 1 loans will rise to £18,330 (currently £17,775)
- Plan 2 loans will rise to £25,000 (currently £21,000).
If you’re a director being paid salary and dividends from your company, and you’re paying back a student loan, you must remember the threshold for repayment is based on your total income.
This will apply to all current and future student loans where employers make student loan deductions. So if you run a payroll for any employees who have student loan deductions, you need to ensure you have a record of what type of loan they have, so that the correct deductions are made.
Closure of childcare voucher scheme to new entrants
Employer-Supported Childcare, also known as the childcare voucher scheme, will only remain open to new applicants until 1st April 2018. Update – the government has confirmed that the closure is to be delayed by six months – so the scheme is now scheduled to close on 1st October 2018.
Employees already registered with the childcare voucher scheme before 1st April 2018 can continue to use the scheme for as long as their employer offers it.
The Government started rolling out the replacement scheme for Tax-Free Childcare in April 2017, this scheme is also open to the self-employed. You cannot use both Tax Free Childcare and Employer-Supported Childcare.
Scottish Income Tax Changes
The Scottish Budget announcement in December 2017 introduced a range of changes for 2018/19 including the following new rates:
|Scottish starter tax rate
||19% on annual earnings above the personal tax threshold and up to £2,000
|Scottish basic tax rate
||20% on annual earnings above the personal tax threshold from £2,001 to £12,150
|Scottish intermediate tax rate
||21% on annual earnings above the personal tax threshold from £12,151 to £31,580
|Scottish higher tax rate
||41% on annual earnings above the personal tax threshold from £31,581 to £150,000
|Scottish top tax rate
||46% on annual earnings above the personal tax threshold from £150,000
Increase in the National Minimum and National Living Wage on 1st April 2018
The minimum hourly wage rate that your staff are entitled to depends on their age and whether they are an apprentice.
|| 25 years and over
|| 21 to 24 years
|| 18 to 20 years
|| Under 18 years
|From April 2017
|From April 2018
Taxable Benefits: Time Limit for Making Good
When an employee gives something (usually a cash payment) to the person (usually the employer) providing a benefit in kind (BiK) in return for it, this is known as ‘making good’. The payment has the effect of reducing the taxable value of the benefit in kind, often to zero. This reduces the amount of the employee’s taxable earnings.
There is now a statutory deadline for ‘making good’ on non-payrolled BiKs. Employees will need to ’make good’ on a benefit received in any one tax year by the 6th July after the end of the tax year in order to reduce the value of the tax benefit.
The change will affect making good on a tax liability arising in the tax year 2017/2018 and subsequent years. The deadline for making good on non-payrolled benefits for tax year ending 5th April 2018 will be the 6th July 2018.
All tax changes for 2018/19
We’ve put together a handy article with all the tax rates, threshold and allowances for 2018/2019 (and 2017/2018) here.