Nicola Hardy, our practice manager, gives some top tips for individuals…

Tips for Individuals

As we are now gearing up for the new tax year in April, we have put together some tips for individuals to consider.

 

Dividend Taxation

From April 2016 the way dividends are taxed are changing, instead of the tax credit system there will be a £5,000 dividend allowance. If you are manager owned business, are a basic rate tax payer and if company profits allow it would be advisable to take dividends up to the basic rate band before the rules change in April 2016. If you require tax planning on this please do not hesitate to get in touch.

 

Use up your Partners Tax Free Allowance

The marriage allowance allows you to transfer part of your personal allowance to your husband, wife, or civil partner. To benefit as a couple, you can transfer up to £1,000 in 2016/2017, to your spouse or civil partner provided that the recipient is not liable to income tax above the basic rate. Taxpayers have 4 years to make this election.

 

Pay into a Pension Scheme

Contributions to your employer’s pension scheme can be made from your gross pay before any deductions are made for tax. All employers will soon have to offer pension schemes to their employees. A percentage of your pay will automatically be put into the scheme, to which in most cases, your employer will add money and to which you will receive tax relief on the contributions.

 

Check your Tax Code

Is your tax code correct? Having the wrong tax code could mean you are paying too little or even too much tax! The standard tax code for 2016/2017 will be 1100L, meaning you can earn up to £11,000 before paying tax at 20%. Even though this is the standard code, reductions can be made by HMRC in respect of benefits in kind, unpaid tax, and other taxable income. Likewise, the code can be increased in respect of allowable expenditure for example subscriptions. If you believe that your tax code is wrong you can contact us for advice or HMRC to review the code.

 

Help to Buy ISA

Designed for first time buyers, the government has created the Help to Buy Scheme, to help you take the first steps towards buying your own home. The Help to Buy ISA is available to each individual buyer as opposed to each household, and pays a government bonus of 25%.  So for every £200 a month saved, you receive an extra £50 bonus up to a maximum of £3,000, boosting your savings of £12,000 to £15,000. The minimum saving is £1,600 to claim a £400 bonus and you can kick start your account by depositing a lump sum of up to £1,200. On purchasing your first home your solicitor will apply for the government bonus to add to your savings.

 

If you have any questions about the above then please give us a call and we would be happy to discuss with you.

Chloe Greenbank, our staff accountant, says…

The massive change in the taxation of dividends is almost upon us, have you planned for the change?

 

The change in the taxation is mainly going to hit owner managers of small companies, who at the moment are taking small salaries under the personal allowance/NIC thresholds and take the rest of their basic rate band as dividends. At the moment it is most likely no tax will be paid in this scenario, however from the 6^th April 2016 tax credits will be abolished and replaced by a £5,000 dividend tax allowance.

So what does this mean for the owner managers who are not paying any, or very little, tax at the moment, well you will receive your first £5,000 of dividends tax free no matter what your other earnings are, however after this the tax rates are as follows:

 

Basis rate band                                 7.5%

Higher rate band                              32.5%

Additional rate band                       38.1%

 

This compares with 0%, 25% and 30.56% (respectively) which are how the percentages stand at the moment.

Putting this into a real life example if you had £8,000 salary and £30,600 net dividends in 2015/16 and the same in 2016/17 whilst you would pay no tax for 2015/16 there would be tax of £1,695 for 2016/17.  You would also fall into the payments on account scheme and have even more tax to pay in January 2018.

 

In some circumstances the new rules will save people tax but this will more likely be higher and additional rate tax payers.

 

If you would like to know more about how the new rules may affect you please do not hesitate to contact one of the team and we can talk through your options (as there are options!) and plan for future.

Summer Budget 2015 Update

This week we have an additional blog following the budget on Wednesday. You will have all no doubt heard a lot on the subject already but a few things we think are topical for our clients are as follows;

1)      A National Living Wage has been introduced which will be set at £7.20 from April 2016, rising to £9.00 by 2020. The National Minimum Wage was due to be £6.80 in October 2015

2)      Inheritance tax relief will increase to £500,000 with the introduction of an allowance of up to £175,000 per person in respect of the family home, in addition to the current nil rate band of £325,000

3)      The tax credits on dividends will be removed and instead there will be the introduction of an exemption of the first £5,000 per person. Above the £5,000, the rate of tax will depend on the effective tax rate of the individual but for a basic tax payer the effective rate will be 7.5% (currently 0%) and for a higher rate tax payer it will be 32.5% (currently 25%)

4)      The tax relief available to buy to let landlords on mortgage interest will be restricted so that all tax payers receive 20% tax relief, as opposed to the current reliefs of 40 and 45% for higher rate tax payers. This will be implemented by April 2017.

5)      Landlords will also lose the benefit of the 10% wear and tear allowance from April 2016

6)      The Annual Investment Allowance will be reduced from £500,000 to £200,000

7)      Corporation tax rates will fall from 20% to 18% by 2020. Companies with a turnover of more than £20m will have to pay earlier – currently this is two payments before the year end and two after – it will now all be due in the year of assessment.

8)      The Employers Allowances of £2,000 will be increased to £3,000 although there will be greater restrictions on who can claim this.

Overall the Budget did have some surprises and the full extent of the revelations won’t be known until the legislation and details surrounding the measures has been disclosed.

If you are worried or have any queries please contact one of our team who will be happy to discuss any arising issues.