Time for a new tax year! What’s changing for small businesses?

Emily Coltman FCA
Chief Accountant

A new tax year starts on 6th April and that means a set of changes from previous budgets and statements will also come into effect. Here's a round up of what’s changing for small businesses:

Making Tax Digital: time to get ready!

Is your business registered for VAT and does it have to be registered because its sales are over the threshold? Making Tax Digital (MTD) reporting for VAT will become compulsory from 1st April 2019 for all businesses who are, and have to be, registered for VAT.

Why is this relevant now? If you prepare your accounts to 31st March every year and you’re not yet using digital software to keep your books, 1st April 2018 would be the best time to move across to a digital system so that you're ready and prepared for MTD to start, because an accounting year end is the easiest time to switch system. If you're trying to get to grips with a new bookkeeping system and a new filing method at the same time, it will make life harder for you, so we suggest you get ready early!

Dividend allowance falls

6th April 2018 sees the 0% tax allowance for dividends fall from £5,000 to £2,000 a year. That means if you are a sole director/shareholder of a limited company and you withdraw money from the company in a mixture of salary and dividends, your tax bill may go up. Do talk to your accountant about tax planning.

Pension contributions going up for the first time

There is an increase in the minimum contributions for automatic enrolment pensions, with the current combined minimum contribution of 2% rising to 5%. As before, the employer and the employee can choose to pay more than the minimum contributions if they want to.

Date Employer minimum contribution Employee minimum contribution Total minimum contribution
Before 5th April 2018 1% 1% 2%
6th April 2018 - 5th April 2019 2% 3% 5%
6th April 2019 onwards 3% 5% 8%

VAT registration threshold stays the same

The VAT registration threshold usually rises every year at the beginning of April, but this year it's not going to. The Autumn Budget 2017 held the VAT registration threshold at £85,000 for a further 2 years, starting from 1st April 2018.

This represents a decrease in the threshold in real terms, since inflation is still rising.

Scottish rates of income tax changes

If you're a Scottish taxpayer, you'll suddenly be subject to several more rates of income tax than anyone in the rest of the UK.

Here are the new Scottish rates of income tax that will apply from 6th April 2018, for taxpayers who receive the standard UK Personal Allowance;

Band Band name Rate
£11,851 - £13,850 Starter rate 19%
£13,851 - £24,000 Basic rate 20%
£24,001 - £43,430 Intermediate rate 21%
£43,431 - £150,000 Higher rate 41%
£150,001 and over Top rate 46%

The Personal Allowance will reduce by £1 for every £2 of income above £100,000.

These rates and bands apply only to income which is neither dividend income nor savings income. So, for example, if you are a sole director of a limited company, and you're a Scottish taxpayer, you'll pay tax on your salary at Scottish rates, but on your dividend income, you'll pay tax at the rates applying to the rest of the UK.

HMRC have now said that marriage allowance will be given at 20% regardless of whether the spouses are Scottish taxpayers or based in the rest of the UK.

Increase in key rates and thresholds

Here's a brief summary of some of the rates and thresholds increases for 2018/19. All of these are for the full tax year unless otherwise stated:

Details 2018/19 2017/18
Personal Allowance £11,850 £11,500
Employee’s and employer’s NI becomes due at £8,424 £8,164
Higher rate tax becomes due at* £46,350 £45,000
Class 2 NI becomes due when profits pass £6,205 £6,025
Class 2 NI per week £2.95 £2.85

*Except in Scotland

You can keep up to date with current tax rates here; all listed rates, thresholds, limits and charges are updated every time a change is made so you’ll always know where you and your business stand with the taxman.

Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.

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