The new financial year introduces a series of updates to personal and business tax thresholds. There are also changes to pensions and savings that will be coming into effect from April 2019 to be aware of. However, some allowances will be staying the same in the new tax year. Here’s how these tax allowances will affect you in 2019/20.
Personal Allowances, Income Tax and Pensions
Income Tax
Your Personal Allowance is the amount you earn before you start paying Income Tax. This is increasing from £11,850 in 2018/19 to £12,500 in 2019/20.
Meanwhile, the threshold for the Higher Rate of Income Tax at 40% will increase from £46,350 to £50,000 from April 2019.
National Insurance Contributions
For 2019/20, the Class 1 National Insurance threshold is increasing from £8,424 to £8,632 a year. So, if you earn between £8,632 and £50,000 before tax and pension deductions, you will pay NICs at 12%. Earn less, and you will not pay any National Insurance contributions. On earnings above £50,000, you will pay National Insurance at 2%.
National Minimum Wage and National Living Wage
From 1 April 2019, the National Minimum Wage and National Living Wage is increasing – the biggest ever increase to the latter according to the government. The minimum hourly wage depends on worker status and age:
- For employees aged 25 and above, the minimum hourly rate increases from £7.83 to £8.21
- For employees aged between 21 and 24, the minimum hourly rate increases from £7.38 to £7.70
- For employees aged between 18 and 20, the minimum hourly rate increases from £5.90 to £6.15
- For employees under 18 years old, the minimum hourly rate increases from £4.20 to £4.35
- For apprentices of all ages, the minimum hourly rate increases from £3.70 to £3.90
Workplace Pensions
Workplace pensions are based on a percentage of the employee’s earnings. From 6 April 2019, the amount both the employee and employer contribute into the employee’s auto-enrolment workplace pension is changing.
In 2018/19, the minimum contribution from the employer was 2%, while the employee contributed up to 3% of their earnings. Together, this resulted in a 5% total minimum contribution.
In 2019/20, the minimum contribution from the employer is 3%, while the employee will contribute up to 5% of their earnings. Together, this results in an 8% total minimum contribution.
Personal Pensions
Those with a personal pension can still pay up to £40,000 tax-free in the 2019/20 tax year, while the lifetime allowance for pension savings increases from £1,030,000 to £1,055,000.
ISAs
This year, the amount that can be put into an ISA (including Cash ISAs and Stocks & Shares) will remain at up to £20,000. Up to £4,000 can be put into a lifetime ISA in 2019/20, which counts towards the £20,000 threshold.
However, the amount that can put into a Junior ISA is increasing to £4,368.
Personal Savings Allowance
The PSA gives basic rate taxpayers £1,000 tax-free interest allowance a year on savings, while Higher Rate taxpayers have a £500 tax-free savings interest allowance. This has not changed in 2019/20.
Dividend Allowance
As with the Personal Savings Allowance, the allowance for tax-free dividends remains at £2,000 this year, with dividend tax also staying the same.
Student Loans
The earnings threshold for repaying student loans has been updated for the 2019/20 tax year:
- The amount you need to earn annually before paying back a Plan 1 student loan increases from £18,330 to £18,935
- The amount you need to earn annually before paying back a Plan 2 student loan increases from £25,000 to £25,725
Business Tax Changes
Corporation Tax
If you are running a business as a limited company, a club or unincorporated association, or a foreign company with a UK office, you have to pay Corporation Tax on the business’s profits. This tax year, Corporation Tax remains at 19%.
Business Rates
Business rates are taxes paid on non-domestic properties, including retail stores, restaurants, pubs and offices.
As announced in the Autumn Budget 2018, there will be a reduction of a third for companies with a rateable value of £51,000 or less in 2019/20 and 2020/21, under the Retail Discount scheme.
Company Car and Car Fuel Benefit
Employees who are given personal use of a company car are taxed Company Car and Car Fuel Benefit each year. The amount payable is calculated in relation to the value of the car and the amount of fuel that the employee is entitled to use by the company for personal use.
The benefit in kind tax rates are increasing for the 2019/20 tax year, which are based on the CO2 emissions published by the Vehicle Certification Agency. You can find out more about these updates, and calculate your tax on the HMRC website.
Don’t forget: Payslips now mandatory
From 6 April 2019, all employees and workers – even those who are on casual or zero-hours contracts – must receive a payslip at the end of every pay period. These payslips need to include the number of hours worked by the recipient.
Companies that fail to provide a payslip on time, or a payslip that does not itemise the number of hours worked, could face an employment tribunal claim, so it’s important that businesses understand these changes.
This is part of the government’s Good Work Plan reforms; a series of changes being introduced over the next year to modernise working practices and to help workers understand their rights in the workplace.
Need help with your personal or business finances this year?
Get in touch with our expert team of accountants today. Whether you’re a large business needing to comply with the new Making Tax Digital regulations or you’re a sole trader who wants to lose the stress of managing your tax returns, we are here to help.
Simply contact us on our website or call us on 01702 466 886.
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