What’s changing for your small business clients in the 2019/2020 tax year?

Spring has sprung and the 2019/2020 tax year is now upon us. As ever, a new tax year brings with it a host of legislative changes - here are the updates that are most likely to affect your small business clients.

Updates to Income Tax rates and thresholds

Clients who are taxpayers in England, Wales or Northern Ireland are subject to a couple of changes for the 2019/2020 tax year. The tax-free personal allowance, for example, has increased from £11,850 to £12,500.

The new key rates and thresholds are outlined below:

Details 2019/20 2018/19
Personal allowance £12,500 £11,850
Employee's and employer's NI becomes due at £8,632 £8,424
Higher rate tax becomes due at £50,000 £46,350
Class 2 NI becomes due when profits pass £6,365 £6,025
Class 2 NI per week £3.00 £2.95

The government has also adjusted Class 4 National Insurance rates, which you can see on our rates page.

Changes for Welsh taxpayers

In another update, Welsh taxpayers may pay different rates of Income Tax. The table below lists the rates and bands for 2019/2020:

Band Band name Rate
£12,501 - £50,000 Basic rate 20%
£50,001 - £150,000 Higher rate 40%
Over £150,000 Additional rate 45%

Clients who are Welsh taxpayers will now notice a ‘C’ appearing at the beginning of their tax code, similar to the Scottish ‘S’ prefix.

Scottish Income Tax

Clients who are Scottish taxpayers are subject to a couple of different changes for the 2019/2020 tax period.

Band Band name Rate
£12,501 - £14,549 Starter rate 19%
£14,550 - £24,944 Basic rate 20%
£24,945 - £43,430 Intermediate rate 21%
£43,431 - £150,000 Higher rate 41%
Over £150,000 Top rate 46%

These rates and bands apply only to income which is neither dividend income nor savings income. For example, as a sole director of a limited company, a client may pay tax on their salary at Scottish rates, but they would pay UK rates on their dividend income.

Pension contributions to rise

The minimum contributions for automatic enrolment pensions continue to increase, with the 2019/2020 total minimum contribution of 5% rising to 8%. As before, the employer and employee can choose to pay more than the minimum contributions if they want to. Alternatively, it's possible for the employer to pay the total minimum contribution - in this case the employee would not contribute.

The table below shows a worked example of how the total minimum contributions can be met by employer and employee:

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%

Student loan thresholds increase

From this month, the interest rates and thresholds of income-contingent student loans have been adjusted.

The new threshold for plan 1 has risen from £18,330 to £18,935 - earnings above £18,935 will be calculated at 9%. For plan 2, the threshold for post 2012 loans will rise from £25,000 to £25,725.

The Department for Education has also introduced a new Postgraduate Loan (PGL) for England and Wales. The threshold for 2019/20 is £21,000, to be repaid at a rate of 6%, deductions collected through the normal PAYE process.

Clients can find out more about paying their student loan back when they’re self-employed in our handy guide.

Payslip changes

From 6th April 2019, employers are obliged to include the total number of hours worked on payslips for employees whose wages vary by how much time they’ve worked.

National Living Wage/National Minimum Wage updates

As announced in the 2018 Autumn Budget, the National Living Wage (NLW) has now increased by 4.9% to £8.21 an hour for employees aged 25 and over, the highest recorded rise since 2016.

The National Minimum Wage (NMW) has also changed for workers aged 21-24, increasing from £7.38 to £7.70 an hour. The NMW will also rise for those aged 18-20 from £5.60 to £6.15 an hour and from £4.20 to £4.35 for employees under 18.

Let your clients know about this changes by sharing this version of the blog post with them.