New tax year changes: What FDs need to know
With the start of the tax year on 6th April 2019, we have put together this article to help you get to grips with the changes that are impacting your company’s practices.
Here are some points that finance directors (FDs) should bear in mind…
Personal taxes, allowances, and thresholds
Your personal allowance, which is the amount normally earned before income tax deduction is set to increase from £11,850 to £12,500. For most individuals, this will translate into a £130 tax reduction. In addition, the higher income tax rate of 40% will now be applicable on the newly established threshold of £50,000 instead of the previous amount of £46,350. This also includes the increased personal allowance amount.
If employers want to make the most of your tax efficiency being a director or shareholder, they have to pay you about £8,632 in salary along with dividends in the region of £41,368 during the tax year 2019/20. This calculation is based on the assumption that you have no other sources of income. However, if you make more money than this in terms of salary and dividends, then the dividend tax rate that you have to pay will be 32.5%.
Scottish income tax
The December 2018 Scottish budget declarations have brought forth the following changes for the new tax year.
|2018/19 tax year||2019/20 tax year|
|Band Name||Tax Rate||Bands and Thresholds||Bands and Thresholds|
|Starter rate||19%||£11,850 – £13,850||£12,500 – £14,549|
|Basic rate||20%||£13,851 – £24,000||£14,550 – 24,944|
|Intermeditate||21%||£24,001 – £44,273||£24,945 – £43,430|
|Higher rate||41%||£44,274 – £150,000||£43,431 – £150,000|
|Additional rate||46%||Over £150,000||Over £150,000|
The table above has been put together on the assumptions that an individual is getting a tax-free personal allowance of £12,500 for the 2019/20 tax year. For every £2 that you earn above £100,000, your personal allowance will be reduced by £1.
No changes have been made to the dividend allowance and it stays at the same level of £2,000. However, as has been mentioned in the table above, enhanced taxation thresholds mean that you can get a higher amount in dividends before having to pay a higher tax on them.
Company-provided vehicles and fuel benefits
For the new tax year, benefit-in-kind (BiK) taxes on company cars have been increased. The percentage that is normally applied on the car’s list price will see an increase on the basis of carbon emissions as regulated by VCA (Vehicle Certification Agency).
Fuel benefits on company-provided cars and vans
The payments made by your employers for the fuel that your personal use of the company car has consumed fall under the umbrella of BiK. The charges for these fuel benefits will only come into play when fuel has been provided by the company for your personal use.
The amount of tax to be paid on such benefits will increase this year. Following are the new amounts that have to be paid.
- For company vans, the new amount for BiK will be £3,430. This has been increased from £3,350.
- The BiK on fuel provided for the personal use of a company van will increase from £633 to £655.
The calculation of fuel benefits on cars is slightly different and more complicated.
A company director who has been provided a car by his employers also tends to receive free fuel on which tax is paid on its cash-equivalent value. This is a fixed value every year and has been increased from £23,400 to £24,100.
On the other hand, the BiK charges are computed by using a percentage that is similar to the rate used for company car benefits. This is then multiplied by the fixed amount previously mentioned. For instance, if your company-provided car’s BiK percentage is 13%, then the amount you will have to pay on the fuel for personal use will be £3,133 which is 13% of £24,100.
Thresholds have been increased for Student Loan Plans 1 and 2. As a company director who is paying back a student loan, you must keep in mind that the repayment threshold is based on your total income.
For the new tax year, the following earnings thresholds will apply before you can start to repay any student loans.
- For Plan 1, the earnings threshold will increase from £18,330 to £18,935.
- For Plan 2, the earnings threshold will increase from £25,000 to £25,725.
Post-graduate master’s loan and post-graduate doctoral loan
For students in England and Wales, repayment will be at the rate of 6% on income in excess of £21,000. On the other hand, Northern Irish and Scottish students having more than £18,330 in income will have to make repayment at 9%.
The tax-free amount of money that you are allowed to pay into a personal pension account remains the same at £40,000 annually. The for-life allowance for pension savings has been increased from £1,030,000 to £1,055,000.
Capital gains tax
The amount for Capital Gains Tax exemption for individuals has been increased from £11,700 to £12,000. These are some of the changes that all FDs need to have an idea about.
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Date Posted: May 8th 2019
Posted By: Phil Scott