As the 2019/20 tax year begins, some significant changes to tax and business legislation have taken effect. Here, we review some of the key measures that could affect your business or personal finances.
Changes to income tax
For 2019-20, the personal allowance increases from £11,850 to £12,500. Your personal allowance is how much you can earn before you start paying income tax.
For 2019-20 the higher rate threshold increases from £34,500 to £37,500. This is the threshold at which you start paying the higher rate of 40% tax on your profits. The additional rate threshold remains unchanged at £150,000.
The Dividend Allowance for the 2019/20 tax year remains at £2,000.
National Insurance contributions
Employees will now pay 12% on earnings of £8,632 to £50,024 in 2019-20. Employees will pay 2% on any earnings above the £50,024 threshold. The NIC threshold for employers increases to £8,632 in 2019-20 with employer NICs of 13.8% due on any annual salary payments above this threshold.
There are also changes to the NIC contributions for the self-employed. The government recently announced it has decided to scrap plans to abolish the Class 2 National Insurance. Instead, 2019-20 will see it rise by 5p a week from £2.95 per week to £3.00 per week on all earnings above the small profits threshold of £6,365 per annum.
Self-employed workers will now pay Class 4 NIC of 9% on earnings of £8,632 to £50,000 and will pay 2% on any earnings above the £50,000 threshold.
Changes to the National Living Wage (NLW) and National Minimum Wage (NMW) rates
While not a tax change, an increase in the national living wage will affect business owners with employees. From 1 April 2019, the National Living Wage will increase to £8.21 per hour for employees aged over 25 and over, £7.70 per hour for employees aged 21 to 24 and £6.15 per hour for employees aged 18-20.
The national minimum wage will also rise to £4.35 per hour for employees aged 16 to 17.
For an apprentice in the first year of their apprenticeship the minimum rate will rise to £3.90 an hour.
Increase in compulsory pension contributions
As part of the pension’s auto-enrolment scheme from 6 April 2019 employees opted in will be required to contribute at least 5% on the qualifying pensionable earnings while employers will now be required to contribute at least 3% on the qualifying pensionable earnings. This will be on wages over £116 per week or £503 per month.
Student Loans threshold increase
The Department for Education has confirmed that from 6th April 2019 the earnings threshold before you start to repay a student loan for:
Plan 1 loans will rise to £18,935
Plan 2 loans will rise to £25,725
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.
The tax-free amount you can pay into a personal pension remains at £40,000 per tax year. The lifetime allowance for pension savings increases from 6th April 2019 to £1,055,000 (from £1,030,000).
An increase in the Capital Gains Tax allowance
In 2019-20, you can make £12,000 tax-free when you sell assets that qualify for Capital Gains Tax (up from £11,700 in 2018-19)
Basic rate taxpayers pay 10 per cent of Capital Gains Tax on profits above the allowance. Higher and additional rate taxpayers pay 20 per cent.