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TAX TIP TUESDAY: Start of the New Tax Year – What Rates are Changing?

Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice. 

With another tax year under your belt, you might think you have finally have a handle on all the rules and regulations that will help you save the most money. That is until HMRC releases the list of changes for the new tax year and you have a whole new set to learn!

Not to worry, we’ve put together a rundown of the most important changes that have been made to help get you up to speed.

Personal Allowance

The amount of money you can earn before being subject to tax (your personal allowance) will increase from £11,500 to £11,850. For many taxpayers this means an extra £70 in your pocket.

Higher rate income tax threshold

Taxpayers currently paying the higher-rate of income tax (40%) will enjoy an increase in the threshold from £45,000 to £46,350, which includes the increased Personal Allowance. If you are a limited company shareholder earning £46,350 or more in dividends, your annual tax will decrease by £337.50.

Dividend Allowance Reduction

Unfortunately for freelancers, contractors, and small businesses working through a limited company, the Dividend Allowance will decrease from £5,000 to £2,000. As a result, basic rate taxpayers paying 7.5% on dividends will shell out an extra £225 of income tax.

Capital gains tax

To stay in line with the Consumer Price Index, the Capital Gains Tax annual exemption for individuals raises from £11,300 to £11,700.

Student Loan Plan 1 and Plan 2 threshold increase

The Department for Education is increasing the earnings threshold before students are required to begin student loan repayments. This is effective for all current and future loans that are subject to employer deductions. Plan 1 threshold increases from £17,775 to £18,330 and the threshold for plan 2 increases from £21,000 to £25,000.

Research and Development (R&D) expenditure credit

To support business investment in research and development, the R&D expenditure credit will be raised from 11% to 12% and will be backdated effective 1 January 2018.

Childcare voucher scheme

Employer Supported Childcare, otherwise known as the childcare voucher scheme, will only accept new applicants until 1st October 2018.

Individuals already registered with this scheme may carry on using it as long as it is still offered by their employer. The new scheme for childcare, Childcare Choices, debuted in April 2017.

National Minimum and National Living Wage

Effective 1st April, the minimum hourly wage rate and national living wage has increased. The new wages are as follows:

  • Apprentice – £3.70
  • Under 18 years – £4.20
  • 18 to 20 years – £5.90
  • 21 to 24 years – £7.38
  • 25 years+ – £7.83

Diesel Supplement Increase

If an employer issues a company car and allows the employee to use it privately, then the diesel supplement is used to work out company car tax and fuel benefit charge.

This supplement will increase from 3% to 4%. This applies when your diesel car has been registered on or after 1 January 1998, it doesn’t meet the Real Driving Emissions Step 2 (RDE2) standards, and it is not a hybrid.

As you can see, there are quite a few changes that are advantageous to many taxpayers, while others may not be beneficial.

Please keep in mind, we’ve only summarised the changes to tax rates, so it would be a great idea to familiarise yourself further about your bespoke changes by speaking to a specialist adviser who can give suggestions on ways you can save tax this year. 

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