Income Tax

Current Rates 2018 / 2019

Taxable Income (UK exc. Scotland)

Rate

Up to £11,850

0%

£11,850 to £46,350

20%

£46,350 to £100,000

40%

£100,000 to £123,700

60%*

£123,000 to £150,000

40%

£150,000 +

45%

* 60% effective rate due to removal of £1 of personal allowance for every £2 of income over £100,000.

For 2018 /2019, a 0% starting rate applies to savings income up to £5,000. This starting rate is not available if non-savings income exceeds £16,850.

You may also get up to £1,000 of interest tax-free depending on which Income Tax band you’re in. This is known as your Personal Savings Allowance. For basic rate taxpayers this equates to £1,000, higher rate taxpayers £500 and additional rate £0.

Furthermore, a £2,000 Dividend Allowance applies. Dividends up to this level are taxed at 0%. Dividends in excess of this allowance are subject to Income Tax at the taxpayer’s marginal rate.

Dividend income

Dividend income is subject to tax as follows: –

Rate Band

Rate

Basic rate

7.5%

Higher rate

32.5%

Additional rate

38.1%

Allocation of rate bands

Taxable income uses up the rate bands in the following order:

Income Type

Examples

General Income

Employment, business profits, rent

Savings Income

Predominantly bank / building society interest

Dividend Income

Distributions from shares

Extension of basic rate band

A taxpayer that pays pension policy premiums, or cash gifts to charity, increases the basic rate band by the grossed up equivalent of the payment. This means that more tax is paid at the basic rate and less is paid at the higher rates.

Important filing dates

Personal tax returns for the tax year 2017 / 2018 should be filed by: –

30th September 2018 if filed via a paper return
or
31st January 2019 if filed electronically.

The penalty for late return is £100.

In respect of income in 2017/ 2018: –

Tax on employment income is paid under Pay As You Earn (PAYE) each month.
basic rate liability on savings and dividends usually settled by receiving the income net of tax paid or credited balance of tax due under self-assessment (SA):

Where Income Tax is paid predominantly through self-assessment, e.g. self-employed individuals, the 1st instalment is due by 31st January 2018, the second instalment is due by 31st July 2018 and any balancing payment is due by 31st January 2019.

Missing any payment dates leads to interest; missing the balancing payment date by 28 days will lead to a 5% surcharge and a further 5% surcharge if not paid by 28th August.

Other personal allowances

Age Allowances

Age 65 to 74 during the year

£11,850

Age 75 and over during the tax year

£11,850

Age related minimum

£11,850

Married couples allowance where one spouse or civil partner was born before 6th April 1935

£8,695

Married couples minimum

£3,360

Income limit

£28,900

Where income exceeds the income limit (extended by any gift aid and pension contributions), the age allowances are reduced by £1 for every £2 of excess income to the minimum level. This is applied first from the Personal Allowance until the minimum is reached, then from the Married Couples Allowance until the minimum is reached.

Please note that the Married Couple Allowance is applied by way of a tax reduction and relief is granted at 10%.

Marriage Allowance lets you transfer £1,185, i.e. a maximum of 10% of your Personal Allowance, to your husband, wife or civil partner if they earn more than you. This reduces their tax by up to £237 in the tax year (6 April to 5 April the next year). To benefit as a couple, you (as the lower earner) must have an income of £11,850 or less.

Blind persons allowance is £2,390.

Main personal reliefs

Rent-a-room exemption

For letting out part of the taxpayer’s only or main residence, tax-free income of £7,500 per annum may be received.

Gift aid

On a cash gift to charity, the charity can reclaim 20/80 (25%) of the donation from HMRC if the donor makes a declaration. The donor increases the basic rate band by the gross gift (100/80). The market value of gifts of land or quoted shares can be deducted from taxable income for full tax relief, and the charity pays no tax on the gift received

National Insurance

2018 / 2019

Class 1 (Employees & Employers)

Income

Employees NI

Employers NI

Up to £8,424

0%

0%

£8,424 to £46,350

12%

13.8%

£46,350 +

2%

13.8%

Class 2 (Self-employed)

Self-employed people pay Class 2 contribution to qualify for certain state benefits, including the basic state pension. The rate is £2.95 per week, unless they claim exception for small earnings (below £6,205).

Class 3

Class 3 voluntary NI may be paid by someone who is not in work but who wishes to maintain state pension rights. The rate is £14.65 per week / £761.80 per annum.

Class 4 (Self-employed)

Class 4 NI is paid on taxable profits and is assessed and paid along with the self-assessment Income Tax on profits.

The rates are: –

Income

Rate

Up to £8,424

0%

£8,424 to £46,350

9%

£46,350 +

2%

Someone who is both employed and self-employed will pay Class 1, Class 2 and Class 4 NIC. It is possible to apply for deferment of Class 4, and sometimes Class 2 as well, so that the Class 1 paid on earnings can be taken into account. Class 4 will then be charged at only 2%, and the overall liability will be settled at a later date.

Capital Gains Tax (CGT)

2018 / 2019

The annual exemption is £11,700.

Gains in excess of the annual exemption are added to income and charged at 10% for basic rate taxpayers and 20% for higher rate taxpayers. Gains relating to disposal of residential investment property are subject to an additional surcharge of 8%

A limited form of relief known as Entrepreneurs Relief is available for the disposal of certain business assets, up to the value of £10 million (lifetime limit). Where this relief is available, the tax rate reduces to 10%.

Major CGT reliefs

A number of types of asset are exempt from CGT, including chattels (tangible movable property) which are bought and sold for less than £6,000; cars; and the taxpayer’s only or main residence, which qualifies for Principle Private Residence Relief. A taxpayer with more than one residence can choose which is to be exempt, but it is not possible to apply the exemption to an investment property that is rented out.

Gifts to charity are not charged to CGT, and gifts of quoted shares and land also enjoy an income tax relief (see Personal Tax).

Deferral of gains

Deferral is allowed on some types of reinvestment, such as subscription for new Enterprise Investment Scheme (EIS) shares.

 

Inheritance Tax (IHT)

2018 / 2019

The nil rate band for cumulative chargeable transfers in the last seven years is £325,000. Any unused proportion of the nil rate band, expressed as a percentage, may be used when the second spouse or civil partner dies.

Gifts above that are charged at the following rates:-

Chargeable legacies on death

40%

Gifts within 7 years of death

40%, with reductions if over 3 years before death (or 36% where at least 10% of an estate is left to charity)

Lifetime chargeable gifts

20% if the donee pays the tax, 25% if the donor pays

An additional residential nil-rate band was introduced in 2017 / 2018. This was initially £100,000, however, it has increased to £125,000 in 2018 / 2019 and is expected to increase further to £150,000 in 2019 / 2020 and finally £175,000 in 2020 / 2021. There is, however, a tapered withdrawal of this additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

Payment

IHT on a deceased’s estate and on gifts within 7 years of death is generally payable at the end of six months after the month of death, but it must be paid before probate is granted, and this may necessitate earlier settlement.

IHT on lifetime gifts is generally payable on the later of six months after the month of transfer or 30 April in the next tax year.

Major reliefs

The following transfers are exempt from IHT: –

  • the first £3,000 gifted in a tax year (any unused limit may be carried forward for one year).
  • small gifts of up to £250 to one person in a year.
  • normal expenditure out of income.
  • gifts between husband and wife, unless the donor is domiciled in the UK and the recipient is not in which case transfers are only exempt up to £55,000.
  • gifts between individuals more than 7 years before the donor’s death (until the donor dies such gifts are left out of account as ‘potentially exempt’).
  • gifts in consideration of marriage – £5,000 from a parent, £2,500 from a grandparent or a party to the marriage, £1,000 from others.

Most business and agricultural property enjoys 100% relief once it has been owned for two years, although some types of property are relieved only at 50%, and it is important to meet all the conditions.

 

Corporation Tax

2018 / 2019

The rate of tax depends on the total profits of the company, but marginal relief is available where the profits fall within particular bands. The effective rate of tax within the band is shown in the table.

Profits for the year to 31st March 2018

Rate

£0 to £300,000

19%

£300,000 to £1,500,000

19%

£1,500,000 +

19%

The bands are adjusted for associated companies and for accounting periods of less than 12 months.

Payment and filing

Companies that do not pay at the full rate (i.e. profits below £1.5m) must settle their Corporation Tax liability by 9 months and one day after the end of the accounting period.

Large companies generally make payments on account of Corporation Tax 6.5 months, 9.5 months, 12.5 months and 15.5 months after the start of a 12 month accounting period, with interest running until final settlement of the period’s liability.

All companies file returns 12 months after the end of the period.

Taxation of dividends

Companies are not charged to Corporation Tax on dividends received from other companies.

 

Value Added Tax (VAT)

Value Added Tax (VAT) rates of tax 2018 / 2019

The standard rate of VAT is 20%, or 1/6th of the consideration received for making a supply.

A lower rate of 5% (or 1/21 of the gross receipt) applies to supplies including domestic fuel and power, installation of energy saving materials in houses, and some conversions of residential property.

A zero rate applies to a range of supplies including most food, books, new houses, and children’s clothes.

Certain other supplies are exempt, which means no tax is charged to the customer, but the supplier cannot recover VAT on costs. These include many land-related supplies, insurance, finance, education, health and welfare, and non-profit sports clubs.

Thresholds

An unregistered business must register if it has made £85,000 of taxable supplies in the last 12 months, up to any month end, or if it expects to make £85,000 of taxable supplies in the next 30 days.

A registered business can deregister if it can satisfy HMRC that taxable supplies in the next year will not exceed £83,000.

Small businesses with taxable turnover of up to £150,000 can opt to use the ‘flat-rate scheme’. A single rate, which varies with the type of business, is applied to all receipts, and no VAT is claimed on costs. The single rate is lower than 1/6th to compensate for lost input tax.

Small businesses with taxable turnover of up to £1,350,000 can use the cash accounting scheme (only paying VAT to Customs when customers have paid).

Scale charge for private use of fuel paid for by business

Returns and payments

Most VAT returns are prepared for three-month periods, and they are due (with any payment) by the end of the next month.