The new tax year is upon us, and it's ringing in some important changes. If you're self employed it's best practice to track your tax expenditure throughout the year (if you don't already, make it your new tax year resolution).
As well as helping to keep your monthly budget in order, it also means you won't have a nasty surprise when you file your return.
Here's what to take into account while calculating your income for 2018-19.
The goalposts are changing
Get ready to update your tax spreadsheet. The personal allowance threshold is rising by £350, letting you earn £11,850 tax free before you need to start skimming 20% off for the Treasury. Another boost is that the basic rate threshold is also rising – from £45,000 to £46,350 – so you have more earning power before paying tax at the higher, 40% rate.
The tax free dividend allowance is decreasing
The amount of tax-free dividends that you can receive each year is dropping from £5,000 to £2,000. Basic rate taxpayers will need to pay 7.5%, higher rate 32.5% and additional rate taxpayers will be charged 38.1%. The main victims of this change will be director shareholders of private companies who choose to pay themselves in dividends, as well as those with portfolios which earn more than £2,000 per year. ISAs and pensions won't be affected.
National Minimum Wage is increasing
Employers, take note – the minimum wage is going up from the 1 April, just in time for the new tax year. Rates are rising to £7.83 per hour for over-25s, £7.38 for 21-24 year olds, £5.90 for 18-20 year olds and £4.20 for 16-17 years old. The rates are lower for people in the first year of an apprenticeship (£3.70).
Tax breaks for residential landlords are dropping
The phasing out of mortgage relief for buy-to-let investors will continue in 2018-19. Landlords will only be able to offset 50% of their mortgage interest against their profits, a drop of 25% since last tax year. This will continue to reduce over the next few years to 25% for 2019-20 and down to zero for 2020-21, to be replaced by a 20% mortgage interest tax relief.
Diesel vehicles will pay a higher rate of tax
Although VED is increasing again this year, the new rates only apply to cars and not to vans and other commercial vehicles. Still, it might be worth considering giving your fleet a green upgrade as it could only be a matter of time.
...and what isn't changing
You might remember the furore after the 2017 Spring Statement, when Philip Hammond announced that Class 2 NICS would be abolished this year, and Class 4 NICS would be rising from 9% to 10%. This move was widely criticised as 'an attack on the self employed', as it would increase National Insurance contributions. The decision was made in November 2017 to postpone the change until next tax year, so pop a reminder in your diary for April 2019.
Now you’re up to speed with the tax changes in 2018, it’s always a good idea to brush up on your bookkeeping basics. Find out how to keep track of your costs v earnings here.
