Measures coming into effect in the new tax year
The 2018/19 tax year starts on 6 April 2018, and along with it some changes to tax and business legislation will come into effect. Here, we outline some of the key measures.
Increase in employers' auto-enrolment contributions
Currently the pension auto-enrolment legislation requires employers to contribute at least 1% on qualifying earnings. From 6 April 2018, employers may be required to increase the contribution they pay into their automatic enrolment workplace pension scheme. Affected employers will be required to pay a minimum of 2% from this time. A further increase to 3% is set to take place from 6 April 2019 onwards.
Reduction in the Dividend Allowance
The Dividend Allowance is set to reduce to £2,000 on 6 April 2018 from its current level of £5,000. This reduction comes just two years after the legislation was first introduced, and is being implemented in order to 'address the unfairness associated with director-shareholders' tax advantage'.
If you are a director of your own company, you will need to use tax planning strategies to optimise how you extract profit from your business - please contact us for more information.
Increase in National Minimum Wage (NMW) and National Living Wage (NLW) rates
From 1 April 2018, the NMW will increase to £7.38 per hour for workers aged 21-24, and to £5.90 an hour for workers aged 18-20. For workers who are aged 16-17, the NMW will rise to £4.20 per hour, and for apprentices, the rate will rise to £3.70 an hour. An apprentice is an individual who is aged under 19, or 19 and over and in the first year of their apprenticeship. Meanwhile, the NLW for employees aged 25 and over will increase to £7.83 per hour.
The Land Transaction Tax (LTT)
For those seeking to purchase a residential property in Wales, there will be no tax to pay on a home worth up to £180,000 from 1 April 2018. This benefits all buyers, not just first-time buyers. Individuals purchasing property worth between £180,000 and £250,000 will need to pay LTT at 3.5%, and those buying property worth between £250,000 and £400,000 will pay 5%. Further increases in LTT are 7.5% for properties worth between £400,000 and £750,000, 10% for properties worth between £750,000 and £1,500,000, and 12% for properties worth more than £1,500,000.
The new Scottish income tax bands
From 6 April 2018, tax on income will be different for taxpayers who are resident in Scotland to those elsewhere in the UK. In the 2017 Scottish Budget, the Finance Secretary for Scotland, Derek Mackay, announced two new income tax bands, bringing the total to five. The new Scottish income tax rates range from 19% to 46%. However, savings and dividends income is still taxed at the UK rate, and Scottish taxpayers are entitled to the same personal allowance as the rest of the UK.
Rise in the pensions Lifetime Allowance (LTA)
The LTA is the maximum amount an individual can save into their pension scheme (excluding the state pension) and still benefit from tax relief at their marginal rate. The LTA has increased in line with the Consumer Price Index (CPI), and for 2018/19 it will rise from £1,000,000 to £1,030,000. You can continue to save into a pension scheme, but any income above the LTA will be liable to tax.
When there is a pay-out from your pension scheme, its value is compared against the remaining LTA to calculate any outstanding additional tax.
As your accountants, we can advise you on how the measures taking effect from April 2018 could affect your business or personal finances. Please get in touch with us for more information.