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Gareth Burton

Posted by Gareth Burton

Dec 08

This year’s budget and income tax & NI

On November 30th, we produced the Burton Beavan report on the Budget as a whole – you can read it here. In this article, we’re going to focus on what changes there were to income tax and NI you bring in in this year’s Budget and how it affects you.

Income taxes and savings rates

Other than a raise in the personal allowance to £11,850 and the change in the threshold at which higher rate tax occurs (lifting it to £46,350), income tax levels remain the same year on year

Band

England, Wales, N Ireland Scotland Tax rate
Personal Allowance Up to £11,850 Up to £11,850 0%
Basic rate £11,851 to £46,350 £11,851 to £43,000 20%
Higher rate £45,001 to £150,000 £43,001 to £150,000 40%
Additional rate over £150,000 over £150,000 45%

Scotland sets a different higher-rate tax band and an announcement from Holyrood is expected in December on whether they will move it from its current level.

Dividend income

Dividends are distributions of profit from a business to its shareholders and are treated differently from salary.

From 2018/2019, the dividends you’re entitled to earn without paying taxes on them falls 60% from £5,000 to £2,000.

The rate of tax you pay on your dividends is based on your total net adjusted income – defined here by HMRC.

Adjusted net income level Dividend tax rate
£0-£46,350 7.5%
£46,351-£150,000 32.5%
£150,001 or higher 38.1%

National Living Wage

The National Living Wage, the name of the National Minimum Wage for 25-year olds and over, increases to £7.83 from April 2018.

National Insurance thresholds

The thresholds for working out National Insurance have increased but the rates charged for National Insurance have not. This includes the abolition of the advertised Class 4 NIC increase to 10% in 2018 and 11% in 2019.

The thresholds from April 2018 will be:

Tax year 2017 to 2018 Tax year 2018 to 2019
Weekly Lower Earnings Limit (LEL) £113 £116
Weekly Primary Threshold (PT) £157 £162
Weekly Secondary Threshold (ST) £157 £162
Upper Earnings Limit (UEL) £866 £892
Upper Secondary Threshold for under 21s £866 £892
Apprentice Upper Secondary Threshold for under 25s £866 £892

Class 1 (employee’s contribution)

• no NI is payable on earnings below the weekly primary threshold
• 12% NI is paid on earnings between the primary threshold and the upper earnings limit
• 2% NI is paid on earnings above the upper earnings limit

Class 1 (married women’s reduced rate)

• no NI is payable on earnings below the weekly primary threshold
• 5.85% NI is paid on earnings between the primary threshold and the upper earnings limit
• 2% NI is paid on earnings above the upper earnings limit

Married women’s reduced rate, a scheme closed to new applicants in April 1977, allowed married women to pay a reduced rate of Class 1 NI.

Class 1 (employer’s contribution)

• no NI is payable on earnings below the standard threshold (currently at the same rate as the weekly primary threshold)
• 13.8% NI is paid on earnings above the standard threshold

National Insurance Employer’s Contribution is a tax on employment paid by companies and not by employees.

No employer’s contribution is due on employees under the age of 21 or apprentices under the age of 25 up to the upper secondary threshold or apprentice upper secondary threshold (both at the same level). 13.8% NI is payable by the employer on the part of the wage above these levels.

Class 2 (self-employed, flat rate)

Class 2 NI was due to be abolished from April 2018 however this plan has been put on hold.

Class 2 NI is only payable when your profits are above £6,205 in the tax year from April 2018, up from the current level of £6,025.

Above this level, £2.85 a week is payable (£3.60 for share fishermen and £5.80 for volunteer development workers).

Class 3 (voluntary contributions)

Class 3 NI contributions are voluntary tops ups to fill in gaps in a taxpayer’s contribution record to top up entitlement to benefits like the State Pension.

From April 2018, the weekly contribution will rise to £14.65 from its current £14.25.

Class 4 (self-employed, percentage of profits)

If you’re self-employed, there is no Class 4 NI to pay if your profit is below £8,425. Between £8,425 and £46,350, you’ll pay 9% on your profits and above £46,350, you’ll pay 2%.

Optimise your tax in 2018/2019

Whether you’re a sole trader or a director of your own limited company, it’s important that you work with your Burton Beavan accountant to make sure your pay is structured so that you pay the least amount possible in tax. Call us on 01606 333 900 or email us at hello@burtonbeavan.co.uk.

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