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What are the main changes in the 2018/19 tax year?

Overview

From the 6th April 2018, changes will be implemented to certain allowances and rates of tax. These can be changes to personal tax rates (income tax, National Insurance or dividends) or business taxes (such as corporation tax).

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Are these changes good or bad?

Well, in short they can be either. The changes may affect you differently depending on your personal circumstance and ways you pay tax (e.g. the changes may affect you differently being self-employed rather than a PAYE employee).

Here are some of the key changes:

Personal allowance
The amount you can earn without paying income tax rises from £11,500 to £11,850, which works out as a tax cut of £70 for most people.

Income tax
The starting point for paying 20% basic rate tax will be £11,850, while 40% tax will start on earnings above £46,350 (up from £45,000).

Scotland
It’s different in Scotland. 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 your earnings hit £24,000, when it rises to 21%. Then above £43,430 the rate is 41%. Both have an upper rate above £150,000; in England it’s 45%, in Scotland 46%.

National insurance 
Will be charged at 12% of income on earnings above £8,424, up from £8,164 until you are earning more than £46,350, after which the rate drops to 2%. It’s the same in Scotland.

Auto-enrolment 
Pension contributions start racking up from this week. From Friday workers must pay a minimum of 3% of salary into a pension (up from 1%), while the employer contribution rises from 1% to 2%.

Buy-to-let landlords
Will only be able to offset 50% of their mortgage interest when calculating their tax bill, compared with 75% before.

Dividends 
Until now you could earn £5,000 in dividends tax-free. This drops to £2,000 for 2018-19.

Corporation Tax
Company tax rates has been declining at a steady pace although remains at the same rate used for 2017 being 19%. From 2019, however, this will be reducing to 18% and in 2020 this will be down to 17%.

Further details of the Spring 2018 statement can be found here.

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