Each year as the new tax year dawns on April 6, the government introduces a raft of tax changes to the system. These include cuts to some tax rates and increases in allowances and thresholds. And with so many changes it can become difficult to keep up with what’s happening. Here are 10 key things UK small businesses and individuals need to keep in mind.
- Increased Personal Allowances
A Personal Allowance is the amount of income you don't have to pay tax on – the threshold is earnings below £100,000 a year. Beginning 6 April 2015, the tax-free personal allowance has increased from £10,000 to £10,600. For individuals earning over £100,000, the personal allowance also goes up to £10,600. However, it reduces by £1 for every £2 for individuals who earn over the £100,000 limit. For instance, if someone’s net income exceed £121,200 (2015-16), they won’t receive any personal allowance and all their income will be taxed. This is specific to individuals that were born after 5th April 1948.
This year, HMRC has also introduced a change to personal allowance rates for older individuals. In previous years, the personal allowance for ‘old savers’ born between 6th April 1938 and 5th April 1948 was higher than for ‘savers’ born after 5th April 1948. However, this will be the first year the personal allowance for both groups will stay the same as working age people. But for anyone born before 6th April 1938, there is still an extra allowance of £60. This means the personal allowance for these individuals would increase to £10,660.
- For those earning over £100,000, the personal allowance goes up to £10,600
- For those born after 6 April 1938, the personal allowance has increased to £10,600
- For those born before 6 April 1938, the personal allowance is £10,660
Starting from 1 April 2015, the VAT registration threshold has been increased from £81,000 to £82,000. This means you must register your business for VAT if you Vatable sales are more than £82,000 in a 12-month period.
The VAT deregistration threshold has also increased from £79,000 to £80,000, which means you can deregister your VAT-registered business if its Vatable sales fall below £80,000 in a 12-month period. If you expect to exceed the VAT threshold, then it is recommend that you voluntarily register for VAT.
For sole traders or partners in a partnership, the Class 2 rate of contributions has increased from £2.75 a week to £2.80. From 6 April 2015, the liability to pay Class 2 NIC will arise at the end of each year. Currently a liability to Class 2 NIC arises on a weekly basis.
The Chancellor during his Budget 2015 Speech did announce the abolition of Class 2 NICs but since a date has not been set yet, you will need to continue to pay Class 2 National Insurance just as before. For more detail about Class 2 National Insurance Contributions please read through our Budget Summary.
Employee’s National Insurance:
Starting 6 April 2015, the Employee’s National Insurance threshold has increased to £156 a week. This means that employees will have National Insurance deducted from their wages once they earn £155 or more a week. So even if an employee earns less than their personal allowance (frozen at £10,600 for 2015/16), they might have to pay National Insurance. Anyone with a salary between £8,060 and £10,600 will need to pay National Insurance at 12%.
Employer’s National Insurance
The National Insurance threshold for Employers has also increased. If your business employs staff, you will, from April 2015, start paying National Insurance on their wages above £156 per week. However, Employer’s National Insurance for employees under the age of 21 has been reduced from the normal rate of 13.8% to 0%. You won’t pay National Insurance unless their earnings go over £815 per week.
Remember that Employers can still use the £2,000 Employment Allowance to offset £2,000 against their overall Employer NIC liability. Starting 6 April 2015, the annual £2,000 Employment Allowance has also been extended to householders who employ care and support workers.
From 6 April 2015, the overall ISA savings limit has increased from £15,000 to £15,240. In addition, the annual subscription limit for Junior ISA and Child Trust Fund accounts has increased form £4,000 to £4,080. You will also be able to switch Child Trust Funds into Junior ISAs from 6th April 2015.
Each year you can make a set amount of profit on the sale of certain assets without paying tax. Above this you pay either 18% or 28% in CGT, depending on your total taxable income.
- From 6 April 2015, the CGT threshold has risen from £11,000 to £11,100
Apart from the annual exemption, there are several important CGT reliefs and exemptions for business owners and property investors - these are covered in the Capital Gains Tax section of our Budget Summary.
For the 2014/15 tax year, any savings income (bank interest) of up to £2,880 were taxed at 10%. From 6 April 2015, the level of savings income has gone up to £5,000 a year and the starting rate of tax on this has fallen to 0%. This means that if your taxable income for the 2015/16 tax year is under £15,600 – the Personal Allowance limit (£10,600) plus the Starting Rate Band (£5,000) - you will be able to claim to have your bank either pay you interest tax-free or give a refund for any tax they have deducted.
However, these rates are not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income) exceeds the starting rate limit.
The statutory rate of maternity and paternity pay has increased from £138.18 to £139.58 a week.
From 6 April 2015, there will be a statutory exemption for certain non-cash benefits in kind costing up to £50. An annual cap of £300 will be introduced for office holders of close companies and employees who are family members of those office holders. Those affected by this cap will be able to receive a maximum of £300 worth of trivial benefits in kind each year exempt from tax.
An employer must enrol everyone that is aged between 22 and State Pension age, earns more than £10,000 a year and works in the UK, into a workplace pension scheme. This is known as ‘automatic enrolment’
From April 2015, it will be the turn of employers with less than 50 employees to implement an auto-enrolment scheme. Smaller employers will be phased in gradually. Use this Pensions Regulator staging date calculator to check if the new law applies to your business.
For a full round up of the changes to tax reliefs, allowances and rates please read our comprehensive Budget Summaryand Tax rate plan. And if you want to find out more about how any of these changes may affect you and your business, please speak to your accountant.